<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q/A
(Amendment No. 1)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Numbers 0-20421 and 0-5550
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
----------------------------------------------------------
(Exact name of Registrants as specified in their charters)
<TABLE>
<S> <C>
State of Delaware 84-1260157 and 84-0588868
- ------------------------------------------ -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
- ------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrants' telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of shares held in treasury), as of October 31, 1994, was:
Class A common stock - 485,117,335 shares; and
Class B common stock - 85,976,717 shares.
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
Date: November 23, 1994 By: /s/ Stephen M. Brett
-------------------------------
Stephen M. Brett
Executive Vice President and
Secretary
TCI COMMUNICATIONS, INC.
(Registrant)
By: /s/ Stephen M. Brett
-------------------------------
Stephen M. Brett
Senior Vice President and
General Counsel
<PAGE> 3
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
amounts in millions
<S> <C> <C>
Assets
- ------
Cash $ 46 1
Trade and other receivables, net 323 232
Investment in Liberty Media Corporation
("Liberty") (note 4) -- 489
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 5) 988 645
Investment in Turner Broadcasting System, Inc.
("TBS") (note 6) 764 491
Investment in QVC, Inc. ("QVC") (note 7) 466 2
Property and equipment, at cost:
Land 95 73
Distribution systems 7,636 6,629
Support equipment and buildings 1,117 818
---------- ------
8,848 7,520
Less accumulated depreciation 3,119 2,585
---------- ------
5,729 4,935
---------- ------
Franchise costs 11,019 10,620
Less accumulated amortization 1,628 1,423
---------- ------
9,391 9,197
---------- ------
Other assets, at cost, net of amortization 1,410 528
---------- ------
$ 19,117 16,520
========== ======
</TABLE>
(continued)
I-1
<PAGE> 4
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
amounts in millions
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable $ 230 124
Accrued interest 151 157
Other accrued expenses 801 500
Debt (note 8) 10,654 9,900
Deferred income taxes 3,729 3,310
Other liabilities 131 114
--------- ------
Total liabilities 15,696 14,105
--------- ------
Minority interests in equity
of consolidated subsidiaries 446 285
Redeemable preferred stocks -- 18
Stockholders' equity (notes 1, 4, 6 and 9):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock,
$.01 par value -- --
Convertible Preferred Stock, Series C,
$.01 par value -- --
Class A common stock, $1 par value
Authorized 1,100,000,000 shares;
issued 570,799,618 shares in 1994
and 481,837,347 shares in 1993 571 482
Class B common stock, $1 par value
Authorized 150,000,000 shares;
issued 89,514,429 shares in 1994
and 47,258,787 shares in 1993 89 47
Additional paid-in capital 2,833 2,293
Cumulative foreign currency
translation adjustment (5) (29)
Unrealized holding gains for
available-for-sale securities 433 --
Note receivable from related party (15) --
Accumulated deficit (285) (348)
--------- ------
3,621 2,445
Treasury stock, at cost (85,713,880 and
79,335,038 shares of Class A common
stock in 1994 and 1993 and 3,537,712
shares of Class B common stock in 1994) (646) (333)
--------- ------
Total stockholders' equity 2,975 2,112
--------- ------
Commitments and contingencies (note 10)
$ 19,117 16,520
========= ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 5
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
amounts in millions,
except per share amounts
<S> <C> <C> <C> <C>
Revenue (note 4) $1,286 1,044 3,427 3,104
Operating costs and expenses:
Operating (note 4) 485 298 1,129 889
Selling, general and administrative 364 276 959 806
Compensation relating to stock
appreciation rights -- 6 -- 9
Adjustment to compensation relating to
stock appreciation rights 10 -- (8) --
Depreciation 163 158 499 454
Amortization 78 70 223 217
------ ----- ----- -----
1,100 808 2,802 2,375
------ ----- ----- -----
Operating income 186 236 625 729
Other income (expense):
Interest expense (205) (186) (568) (549)
Interest and dividend income 6 11 26 23
Share of earnings of Liberty
(note 4) 101 11 125 4
Share of losses of other affiliates,
net (note 5) (26) (17) (56) (44)
Gain on disposition of assets 2 4 7 49
Loss on early extinguishment of debt (1) (6) (3) (17)
Minority interests in earnings of
consolidated subsidiaries, net -- (2) -- (6)
Other, net (5) (2) (8) (6)
------ ----- ----- -----
(128) (187) (477) (546)
------ ----- ----- -----
Earnings before income taxes 58 49 148 183
Income tax expense (33) (114) (85) (169)
------ ----- ----- -----
Net earnings (loss) 25 (65) 63 14
Dividend requirements on
preferred stocks (3) (1) (3) (2)
------ ----- ----- -----
Net earnings (loss) attributable
to common shareholders $ 22 (66) 60 12
====== ===== ===== =====
Primary and fully diluted earnings (loss)
attributable to common shareholders
per common and common equivalent
share (note 2) $ .04 (.14) .12 .03
====== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 6
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1994
(unaudited)
<TABLE>
<CAPTION>
Cumulative
foreign
Class B Series C Common stock Additional currency
Preferred Preferred ------------------ paid-in translation
Stock Stock Class A Class B capital adjustment
--------- --------- ------- ------- ------------- -----------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ -- -- 482 47 2,293 (29)
Net earnings -- -- -- -- -- --
Conversion of redeemable preferred
stock -- -- 1 -- 17 --
Issuance of common stock upon
conversion of notes (note 8) -- -- 3 -- -- --
Consummation of the Mergers
(notes 1 and 4) -- -- 85 42 355 --
Issuance of Series C Preferred Stock
in acquisition (note 9) -- -- -- -- 168 --
Accreted dividends on all classes of
preferred stock -- -- -- -- (3) --
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements -- -- -- -- 3 --
Foreign currency translation adjustment -- -- -- -- -- 24
Unrealized holding gains for
available-for-sale securities (note 6) -- -- -- -- -- --
------ --- --- --- ----- ---
Balance at September 30, 1994 $ -- -- 571 89 2,833 (5)
====== === === === ===== ===
</TABLE>
<TABLE>
<CAPTION>
Unrealized
holding Note
gains for receivable
available- from Total
for-sale related Accumulated Treasury stockholders'
securities party deficit stock equity
---------- ---------- ----------- -------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 -- -- (348) (333) 2,112
Net earnings -- -- 63 -- 63
Conversion of redeemable preferred
stock -- -- -- -- 18
Issuance of common stock upon
conversion of notes (note 8) -- -- -- -- 3
Consummation of the Mergers
(notes 1 and 4) 286 (15) -- (313) 440
Issuance of Series C Preferred Stock
in acquisition (note 9) -- -- -- -- 168
Accreted dividends on all classes of
preferred stock -- -- -- -- (3)
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements -- -- -- -- 3
Foreign currency translation adjustment -- -- -- -- 24
Unrealized holding gains for
available-for-sale securities (note 6) 147 -- -- -- 147
--- --- ---- ---- -----
Balance at September 30, 1994 433 (15) (285) (646) 2,975
=== === ==== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 7
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1994 1993
--------- -------
amounts in millions
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 63 14
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 722 671
Compensation relating to stock appreciation rights -- 9
Adjustment to compensation relating to stock
appreciation rights (8) --
Share of earnings of Liberty (125) (4)
Share of losses of other affiliates 56 44
Deferred income tax expense 42 146
Minority interests in earnings -- 6
Amortization of debt discount 1 22
Loss on early extinguishment of debt 3 17
Gain on disposition of assets (7) (49)
Payment of premium received on
preferred stock investment redemption -- 14
Noncash interest and dividend income (6) (5)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables (1) (13)
Change in accrued interest (16) 39
Change in other accruals and payables 63 14
--------- ------
Net cash provided by operating activities 787 925
--------- ------
Cash flows from investing activities:
Cash received from acquisitions 67 --
Cash paid for acquisitions -- (73)
Capital expended for property and equipment (949) (686)
Proceeds from disposition of assets 32 146
Payment received on preferred
stock investment redemption -- 183
Additional investments in and
loans to affiliates and others (308) (257)
Repayment of loans by affiliates and others 144 45
Return of capital from affiliates 22 1
Other investing activities (312) (104)
--------- ------
Net cash used in investing activities (1,304) (745)
--------- ------
Cash flows from financing activities:
Borrowings of debt 3,014 5,653
Repayments of debt (2,449) (5,769)
Preferred stock dividends of subsidiaries (3) (4)
Preferred stock dividends -- (2)
Repurchase of preferred stock -- (92)
Issuance of common stock -- 6
Repurchases of common stock -- (4)
--------- ------
Net cash provided (used) by financing activities 562 (212)
--------- ------
Net increase (decrease) in cash 45 (32)
Cash at beginning of period 1 34
--------- ------
Cash at end of period $ 46 2
========= ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE> 8
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
September 30, 1994
(unaudited)
(1) General
The accompanying consolidated financial statements include the accounts
of Tele-Communications, Inc. (formerly TCI/Liberty Holding Company) and
those of all majority-owned subsidiaries ("TCI" or the "Company"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty entered into a
definitive merger agreement (the "TCI/Liberty Merger Agreement") to
combine the two companies (the "Mergers"). The transaction was
consummated on August 4, 1994 and was structured as a tax free exchange
of Class A and Class B shares of both companies and preferred stock of
Liberty for like shares of a newly formed holding company, TCI/Liberty
Holding Company. In connection with the Mergers, Old TCI changed its
name to TCI Communications, Inc. ("TCIC") and TCI/Liberty Holding
Company changed its name to Tele-Communications, Inc. Old TCI
shareholders received one share of TCI for each of their shares.
Liberty common shareholders received 0.975 of a share of TCI for each
of their common shares (see note 4). Upon consummation of the Mergers,
subsidiaries of TCIC exchanged the 79,335,038 shares of Old TCI Class A
common stock held by such subsidiaries for 79,335,038 shares of TCI
Class A common stock. Such ownership is reflected as treasury stock at
such subsidiaries' historical cost in the accompanying consolidated
financial statements.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of operations
for any interim period are not necessarily indicative of results for
the full year. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto contained in TCIC's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1993.
Certain amounts have been reclassified for comparability with the 1994
presentation.
(2) Earnings (Loss) Per Common and Common Equivalent Share
Primary earnings per common and common equivalent share attributable to
common shareholders was computed by dividing net earnings attributable
to common shareholders by the weighted average number of common and
common equivalent shares outstanding (571.1 million for the three
months ended September 30, 1994; and 517.2 million and 431.9 million
for the nine months ended September 30, 1994 and 1993, respectively).
Shares issuable upon conversion of the Convertible Notes (see note 8)
have not been included in the computation of weighted average shares
outstanding for the nine months ended September 30, 1993 because their
inclusion would be anti-dilutive.
(continued)
I-6
<PAGE> 9
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Fully diluted earnings per common and common equivalent share
attributable to common shareholders was computed by dividing earnings
attributable to common shareholders by the weighted average number of
common and common equivalent shares outstanding (571.1 million for the
three months ended September 30, 1994; and 517.2 million and 432.2
million for the nine months ended September 30, 1994 and 1993,
respectively). Shares issuable upon conversion of the Series C
Preferred Stock (see note 9) have not been included in the
computations of weighted average shares outstanding for the three
months and the nine months ended September 30, 1994 because their
inclusion would be anti-dilutive. Shares issuable upon conversion
of the Convertible Notes (see note 8) and certain convertible notes and
preferred stock converted subsequent to September 30, 1993 have not
been included in the computations of weighted average shares
outstanding for the nine months ended September 30, 1993 because
their inclusion would be anti-dilutive.
Loss per common share attributable to common shareholders for the three
months ended September 30, 1993 was computed by dividing net loss
attributable to common shareholders by the weighted average number of
common shares outstanding (430.8 million). Common stock equivalents
were not included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $573 million and $488 million for the nine
months ended September 30, 1994 and 1993, respectively. Also, during
these periods, cash paid for income taxes was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
1994 1993
------ ------
amounts in millions
<S> <C> <C>
Cash received from acquisitions:
Fair value of assets acquired $1,398 --
Liabilities assumed (449) --
Deferred tax liability recorded
in acquisitions (244) --
Minority interests in equity of
acquired entities (164) --
Note receivable from related party assumed 15 --
Common stock and preferred stock issued
in acquisitions (650) --
Common stock issued to TCIC and Liberty
in the Mergers reflected as treasury
stock (note 4) 313 --
Unrealized gains on available-for-sale
securities reflected on acquired entities (286) --
------ ----
Cash received from acquisitions $ (67) --
====== ====
Cash paid for acquisitions:
Fair value of assets acquired $ -- 80
Liabilities assumed -- (7)
------ ----
Cash paid for acquisitions $ -- 73
====== ====
Common stock issued upon conversion
of redeemable preferred stock $ 18 --
====== ====
</TABLE>
(continued)
I-7
<PAGE> 10
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1994 1993
------ ------
amounts in millions
<S> <C> <C>
Accreted and unpaid preferred
stock dividends $ 3 --
====== ======
Effect of foreign currency translation
adjustment on book value of foreign
equity investments $ 24 2
====== ======
Unrealized gains, net of deferred income
taxes, on available-for-sale securities
exclusive of unrealized gains recorded in
the acquisition of Liberty $ 147 --
====== ======
Noncash exchange of equity investments
and consolidated subsidiaries for
consolidated subsidiary $ 38 --
====== ======
Common stock issued upon conversion
of notes $ 3 3
====== ======
Receipt of notes receivable upon
disposition of Liberty common
stock and preferred stock $ -- 182
====== ======
Noncash exchange of equity investment
for consolidated subsidiary and
equity investment $ -- 19
====== ======
Noncash capital contribution to
Community Cable Television ("CCT") $ -- 22
====== ======
</TABLE>
(4) Investment in Liberty Media Corporation
TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070
shares of Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock ("Liberty Class E Preferred Stock"). Upon consummation
of the Mergers, TCIC received 3,390,833 shares of Class A common stock
of TCI and 55,070 shares of TCI Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock ("Class B Preferred Stock"), a new
preferred stock of TCI having designations, preferences, rights and
qualifications, limitations and restrictions that are substantially
identical to those of the Liberty Class E Preferred Stock, except that
the holders of the Class B Preferred Stock will be entitled to one vote
per share in any general election of directors of TCI (see note 9).
Upon consummation of the Mergers, the remaining classes of preferred
stock of Liberty held by TCIC were converted into shares of Class A
Preferred Stock, a new series of preferred stock of TCI having a
substantially equivalent fair market value (see Note 9).
(continued)
I-8
<PAGE> 11
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Liberty owned 2,988,009 shares of Old TCI Class A common stock and
3,537,712 shares of Old TCI Class B common stock. Such shares were
replaced with the same number of shares of TCI common stock upon
consummation of the Mergers.
TCIC's and Liberty's ownership of TCI common stock are reflected as
treasury stock in the accompanying consolidated financial statements.
Such amounts have been recorded at the historical cost previously
reflected by TCIC and Liberty.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and other
related party considerations, TCIC accounted for its investment in
Liberty under the equity method. Accordingly, TCIC had not recognized
any income relating to dividends, including preferred stock dividends,
and TCIC recorded the earnings or losses generated by Liberty (by
recognizing 100% of Liberty's earnings or losses before deducting
preferred stock dividends) through the date the Mergers were
consummated.
The Mergers were accounted for using predecessor cost due to the
aforementioned related party considerations.
Prior to the Mergers, TCIC purchased sports and other programming from
certain subsidiaries of Liberty. Charges to TCIC (which were based upon
customary rates charged to others) for such programming were $27 million
and $33 million for the period from January 1, 1994 through August 4,
1994 and for the nine months ended September 30, 1993, respectively.
Such amounts are included in operating expenses in the accompanying
consolidated statements of operations. Certain subsidiaries of Liberty
purchased from TCIC, at TCIC's cost plus an administrative fee, certain
pay television and other programming. In addition, a consolidated
subsidiary of Liberty paid a commission to TCIC for merchandise sales
to customers who were subscribers of TCIC's cable systems. Aggregate
commission and charges for such programming were $10 million and $7
million for the period from January 1, 1994 through August 4, 1994 and
for the nine months ended September 30, 1993, respectively. Such
amounts are recorded in revenue in the accompanying consolidated
statements of operations.
On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased a
49.9% general partnership interest in American Movie Classics Company
("AMC") from Liberty under the terms of a buy/sell provision contained
in the AMC partnership agreement. In connection with the purchase,
Rainbow acquired an option to purchase the remaining 0.1% general
partnership interest in AMC from Liberty for less than $1 million. The
proceeds of $180,249,000 included the economic benefit of Liberty's
consulting agreement with AMC assigned by Liberty to Cablevision
Systems Corporation, the parent company of Rainbow. The gain recognized
by Liberty in connection with the disposition of AMC was $183 million.
(continued)
I-9
<PAGE> 12
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Summarized unaudited financial information of Liberty for the period
from January 1, 1994 through August 4, 1994 and for the nine months
ended September 30, 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
Consolidated Operations amounts in millions
-----------------------
<S> <C> <C>
Revenue $ 790 796
Operating expenses (726) (762)
Depreciation and amortization (32) (33)
-------- -------
Operating income 32 1
Interest expense (22) (21)
Other, net 115 24
-------- -------
Net earnings $ 125 4
======== =======
</TABLE>
(5) Investments in Affiliates
Summarized unaudited results of operations for affiliates, other than
Liberty, accounted for under the equity method, are as follows:
<TABLE>
<CAPTION>
Nine months
ended
Combined Operations September 30,
------------------- ---------------------
1994 1993
------ ------
amounts in millions
<S> <C> <C>
Revenue $ 927 649
Operating expenses (837) (595)
Depreciation and amortization (128) (123)
--------- ------
Operating loss (38) (69)
Interest expense (43) (48)
Other, net (162) (11)
--------- ------
Net loss $ (243) (128)
========= ======
</TABLE>
(continued)
I-10
<PAGE> 13
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The Company has various investments accounted for under the equity
method. Some of the more significant investments held by the Company at
September 30, 1994 are TeleWest Communications plc (carrying value of $296
million), Discovery Communications, Inc. (carrying value of $116 million) and
Teleport Communications Group, Inc. (carrying value of $105 million).
(continued)
I-11
<PAGE> 14
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts of that partnership in the event liabilities of that partnership
were to exceed its assets.
(6) Investment in Turner Broadcasting System, Inc.
The Company owns shares of a class of preferred stock of TBS which has
voting rights and are convertible into shares of TBS common stock. The
holders of those preferred shares, as a group, are entitled to elect
seven of fifteen members of the board of directors of TBS, and the
Company appoints three such representatives. However, voting control
over TBS continues to be held by its chairman of the board and chief
executive officer. The Company's total holdings of TBS common and
preferred stocks represent an approximate 12% voting interest for those
matters for which preferred and common stock vote as a single class.
(continued)
I-12
<PAGE> 15
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement No. 115"),
effective for fiscal years beginning after December 15, 1993. Under
the new rules, debt securities that the Company has both the positive
intent and ability to hold to maturity are carried at amortized cost.
Debt securities that the Company does not have the positive intent and
ability to hold to maturity and all marketable equity securities are
classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as
available-for sale are carried as a separate component of shareholders'
equity. Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
The Company applied the new rules beginning in the first quarter of
1994. Application of the new rules resulted in a net increase of $191
million to stockholders' equity in the first quarter of 1994,
representing the recognition of unrealized appreciation, net of taxes,
for the Company's investment in equity securities determined to be
available-for-sale. Such amount was subsequently adjusted to $433
million at September 30, 1994, inclusive of the effect of $286 million
recorded in the Mergers. The majority of such unrealized gain was
reflected on the Company's investment in TBS common stock and QVC
common stock (see note 7). The Company holds no material debt
securities.
(7) Investment in QVC, Inc.
On August 5, 1994, Liberty, Comcast Corporation ("Comcast") and QVC
announced that they had entered into a definitive merger agreement (the
"QVC Merger Agreement") pursuant to which Comcast and Liberty would
acquire all of the outstanding equity securities of QVC which they do
not already own. In accordance with the QVC Merger Agreement, on August
11, 1994, a corporation owned by Comcast and Liberty (the "Purchaser")
commenced a tender offer for all shares of stock of QVC at a net cash
price of $46 per share of QVC common stock and a net cash price of
$460 per share of QVC preferred stock. Following consummation of the
tender offer, a corporation controlled by both Comcast and Liberty will
merge with QVC (the "QVC Merger") and any remaining shares of QVC will
be converted in the QVC Merger into cash at the same price as offered
in the tender offer.
The total amount of funds required to purchase all shares of QVC stock
not owned by Comcast or Liberty in the tender offer and the merger and
to pay certain related fees and expenses is estimated to be
approximately $1.42 billion. In addition to the QVC stock owned by
Comcast and Liberty, which will be contributed to the Purchaser
immediately prior to the consummation of the tender offer, Comcast is
required to contribute $296 million and Liberty is required to
contribute approximately $6.5 million in cash to the Purchaser. The
balance of the funds necessary to consummate the acquisition will be
obtained from borrowings by QVC and subordinated debt of the Purchaser.
The transaction is conditioned upon the majority of the fully diluted
QVC common stock being tendered in the offer, the Purchaser obtaining
the requisite financing on satisfactory terms, upon receipt of certain
governmental approvals and other customary conditions. Should the
transaction be consummated, Liberty would indirectly own approximately
43% of QVC and would account for its investment in QVC under the
equity method.
(continued)
I-13
<PAGE> 16
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Certain of the shares of stock of QVC owned by Liberty are subject to
repurchase by QVC in the event that commitments to carry its
programming are not met. Approximately 46% of the shares which Liberty
holds or would hold upon exercise or conversion of convertible
securities, are "unvested" and are subject to such repurchase rights by
QVC. QVC's repurchase rights with respect to QVC securities held by the
Company are exercisable over a period of time, ending in the year 2004,
if certain carriage commitments made by an indirect wholly-owned
subsidiary of TCIC are not met. Under the terms of a certain agreement
pursuant to which Liberty acquired from TCIC a substantial number of
the QVC securities it now beneficially owns, TCIC has agreed to
reimburse Liberty in the event QVC exercises its right to repurchase
certain of the "unvested" shares. Such reimbursement will be based on
the value assigned such shares when Liberty acquired them from TCIC,
which is substantially below the current market price of such shares.
The agreement between Comcast and Liberty regarding the acquisition of
QVC provides that Comcast and Liberty will, in connection with the
consummation of the QVC Merger, cause QVC to waive its repurchase
rights and to agree that all shares held by Comcast, Liberty and TCIC
are fully vested and not subject to repurchase rights. Other than the
waiver of such repurchase rights, the above described carriage
obligation is not affected by the QVC Merger.
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
amounts in millions
<S> <C> <C>
Senior notes $ 5,412 5,052
Bank credit facilities 3,704 3,344
Commercial paper 292 44
Notes payable 1,039 1,321
Convertible notes (a) 45 47
Other debt 162 92
-------- ------
$ 10,654 9,900
======== ======
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $186 million and $197 million at September 30, 1994
and December 31, 1993, respectively, mature on December 18,
2021. The notes require (so long as conversion of the notes has
not occurred) an annual interest payment through 2003 equal to
1.85% of the face amount of the notes. During July and August
of 1994, certain of these notes were converted into 2,350,000
shares of Class A common stock. At September 30, 1994, the
notes were convertible, at the option of the holders, into an
aggregate of 38,710,990 shares of Class A common stock.
The subsidiaries of the Company's bank credit facilities and various
other debt instruments generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings,
specified cash flow and financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and
include certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and/or dividend payments.
As security for borrowings under one of its credit facilities, TCIC
pledged a portion of the common stock (with a quoted market value of
approximately $580 million at September 30, 1994) it holds of TBS.
(continued)
I-14
<PAGE> 17
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
In order to provide interest rate protection on a portion of its
variable rate indebtedness, certain subsidiaries of the Company have
entered into various interest rate exchange agreements. The Company is
exposed to credit losses for the periodic settlements of amounts due
under these interest rate exchange agreements in the event of
nonperformance by the other parties to the agreements. However, the
Company does not anticipate nonperformance by the counterparties.
The fair value of the interest rate exchange agreements is the
estimated amount that the Company would pay or receive to terminate the
agreements at September 30, 1994, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
The Company would be required to pay $161 million at September 30, 1994
to terminate the agreements.
The fair value of the subsidiaries of the Company's debt is estimated
based on the quoted market prices for the same or similar issues or on
the current rates offered to the subsidiaries of the Company for debt
of the same remaining maturities. The fair value of debt, which has a
carrying value of $10,654 million, was $10,791 million at September 30,
1994.
Certain of TCI's subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper.
TCI has not assumed any of TCIC's or Liberty's indebtedness or other
obligations that were outstanding at the time the Mergers were
consummated.
(9) Stockholders' Equity
Common Stock
The Class A common stock has one vote per share and the Class B common
stock has ten votes per share. Each share of Class B common stock is
convertible, at the option of the holder, into one share of Class A
common stock.
Preferred Stock
Class A Preferred Stock. The Company is authorized to issue
700,000 shares of Class A Preferred Stock, par value $.01 per share.
Subsidiaries of TCI hold all of the issued and outstanding shares of
such stock, amounting to 592,797 shares. Such preferred stock is
eliminated in consolidation. The holders of the Class A Preferred Stock
are entitled to receive, when and as declared by the Board of
Directors, out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any stock that
ranks junior to the Class A Preferred Stock (currently the Class A
common stock, the Class B common stock and the Class B Preferred
Stock), that accrue on each share of the Class A Preferred Stock at the
rate of 9-3/8% per annum of the Stated Liquidation Value of such share
($322.84 per share). Dividends are fully cumulative and are payable in
cash. The Class A Preferred Stock ranks on a parity basis with the
Series C Preferred Stock and the Series E Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. The
Class A Preferred Stock is subject to mandatory redemption by the
Company on the twelfth anniversary of the issue date. The Class A
Preferred Stock may be redeemed at the option of the Company. The
holders of the Class A Preferred Stock have the right to vote at any
annual or special meeting of stockholders for the purpose of electing
directors. Each share of Class A Preferred Stock shall have one
vote for such purpose.
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock.
The Company is authorized to issue 1,675,026 shares of Class B
Preferred Stock. All such shares are issued and outstanding.
Subsidiaries of TCIC hold 55,070 of such issued and outstanding shares.
(continued)
I-15
<PAGE> 18
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Dividends accrue cumulatively (but without compounding) at an annual
rate of 6% of the stated liquidation value of $100 per share (the
"Stated Liquidation Value"), whether or not such dividends are declared
or funds are legally available for payment of dividends. Accrued
dividends will be payable annually on March 1 of each year (or the next
succeeding business day if March 1 does not fall on a business day),
commencing March 1, 1995, and, in the sole discretion of the TCI Board,
may be declared and paid in cash, in shares of TCI Class A common stock
or in any combination of the foregoing. Accrued dividends not paid as
provided above on any dividend payment date will accumulate and such
accumulated unpaid dividends may be declared and paid in cash, shares
of TCI Class A common stock or any combination thereof at any time
(subject to the rights of any senior stock and, if applicable, to the
concurrent satisfaction of any dividend arrearages on any class or
series of TCI preferred stock ranking on a parity with the Class B
Preferred Stock with respect to dividend rights) with reference to any
regular dividend payment date, to holders of record of Class B
Preferred Stock as of a special record date fixed by the TCI Board
(which date may not be more than 45 days nor less than 10 days prior to
the date fixed for the payment of such accumulated unpaid dividends).
No interest or additional dividends will accrue or be payable (whether
in cash, shares of TCI Class A common stock or otherwise) with respect
to any dividend payment on the Class B Preferred Stock that may be in
arrears or with respect to that portion of any other payment on the
Class B Preferred Stock that is in arrears which consists of
accumulated or accrued and unpaid dividends. For so long as any
dividends are in arrears on the Class B Preferred Stock and until all
dividends accrued up to the immediately preceding dividend payment date
on the Class B Preferred Stock shall have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, no dividends may be declared or paid on the TCI common stock or
on any parity stock or other junior stock and no money or assets may be
set aside for such purpose, except for dividends declared and paid on
parity stock contemporaneously and on a pro rata basis with dividends
declared and paid on the Class B Preferred Stock. The Class B Preferred
Stock will rank junior to the Class A Preferred Stock with respect to
the declaration and payment of dividends.
If all or any portion of a dividend payment is to be paid through the
issuance and delivery of shares of TCI Class A common stock, the number
of such shares to be issued and delivered will be determined by
dividing the amount of the dividend to be paid in shares of TCI Class A
common stock by the Average Market Price of the TCI Class A common
stock. For this purpose, "Average Market Price" means the average of
the daily last reported sale prices (or, if no sale price is reported
on any day, the average of the high and low bid prices on such day) of
a share of TCI Class A common stock for the period of 20 consecutive
trading days ending on the tenth trading day prior to the regular
record date or special record date, as the case may be, for the
applicable dividend payment.
(continued)
I-16
<PAGE> 19
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
In the event of any liquidation, dissolution or winding up of TCI, the
holders of Class B Preferred Stock will be entitled, after payment of
preferential amounts on any class or series of stock ranking prior to
the Class B Preferred Stock with respect to liquidating distributions,
to receive from the assets of TCI available for distribution to
stockholders an amount in cash or property or a combination thereof,
per share, equal to the Stated Liquidation Value thereof, plus all
accumulated and accrued but unpaid dividends thereon to and including
the redemption date. TCI will not have any mandatory obligation to
redeem the Class B Preferred Stock as of any fixed date, at the option
of the holders or otherwise.
Subject to the prior preferences and other rights of any class or
series of TCI preferred stock, the Class B Preferred Stock will be
exchangeable at the option of TCI in whole but not in part at any time
for junior subordinated debt securities of TCI ("Junior Exchange
Notes"). The Junior Exchange Notes will be issued pursuant to an
indenture (the "Indenture"), to be executed by TCI and a qualified
trustee to be chosen by TCI.
If TCI exercises its optional exchange right, each holder of
outstanding shares of Class B Preferred Stock will be entitled to
receive in exchange therefor newly issued Junior Exchange Notes of a
series authorized and established for the purpose of such exchange, the
aggregate principal amount of which will be equal to the aggregate
Stated Liquidation Value of the shares of Class B Preferred Stock so
exchanged by such holder, plus all accumulated and accrued but unpaid
dividends thereon to and including the exchange date. The Junior
Exchange Notes will be issuable only in principal amounts of $100 or
any integral multiple thereof and a cash adjustment will be paid to the
holder for any excess principal that would otherwise be issuable. The
Junior Exchange Notes will mature on the fifteenth anniversary of the
date of issuance and will be subject to earlier redemption at the
option of TCI, in whole or in part, for a redemption price equal to the
principal amount thereof plus accrued but unpaid interest. Interest
will accrue, and be payable annually, on the principal amount of the
Junior Exchange Notes at a rate per annum to be determined prior to
issuance by adding a spread of 215 basis points to the "Fifteen Year
Treasury Rate" (as defined in the Indenture). Interest will accrue on
overdue principal at the same rate, but will not accrue on overdue
interest.
The Junior Exchange Notes will represent unsecured general obligations
of TCI and will be subordinated in right of payment to all Senior Debt
(as defined in the Indenture). The Indenture will not limit the amount
of Senior Debt or any other debt, secured or unsecured, of TCI or any
subsidiary. There can be no assurance as to the establishment or
continuity of any trading market for the Junior Exchange Notes that
would be issued if TCI exercised its optional exchange right.
Accordingly, holders of Class B Preferred Stock who receive Junior
Exchange Notes in exchange therefor may have difficulty selling such
Notes.
(continued)
I-17
<PAGE> 20
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
For so long as any dividends are in arrears on the Class B Preferred
Stock or any class or series of TCI preferred stock ranking pari passu
with the Class B Preferred Stock which is entitled to payment of
cumulative dividends prior to the redemption, exchange, purchase or
other acquisition of the Class B Preferred Stock, and until all
dividends accrued up to the immediately preceding dividend payment date
on the Class B Preferred Stock and such parity stock shall have been
paid or declared and set apart so as to be available for payment in
full thereof and for no other purpose, neither TCI nor any subsidiary
thereof may redeem, exchange, purchase or otherwise acquire any shares
of Class B Preferred Stock, any such parity stock or any class or
series of its capital stock ranking junior to the Class B Preferred
Stock (including the TCI common stock), or set aside any money or
assets for such purpose, unless all of the outstanding shares of Class
B Preferred Stock and such parity stock are redeemed. For so long as
any dividends are in arrears on the Class B Preferred Stock and until
all dividends accrued up to the immediately preceding dividend payment
date on the Class B Preferred Stock shall have been paid or declared
and set apart so as to be available for payment in full thereof and for
no other purpose, TCI may not declare or pay any dividend on or make
any distribution with respect to any junior stock or parity stock or
set aside any money or assets for any such purpose, except for
dividends declared and paid on parity stock contemporaneously and on a
pro rata basis with dividends declared and paid on the Class B
Preferred Stock. If TCI fails to redeem or exchange shares of Class B
Preferred Stock on a date fixed for redemption or exchange, and until
such shares are redeemed or exchanged in full, TCI may not redeem or
exchange any parity stock or junior stock, declare or pay any dividend
on or make any distribution with respect to any junior stock or set
aside money or assets for such purpose and neither TCI nor any
subsidiary thereof may purchase or otherwise acquire any Class B
Preferred Stock, parity stock or junior stock or set aside money or
assets for any such purpose. The failure of TCI to pay any dividends on
any class or series of parity stock or to redeem or exchange on any
date fixed for redemption or exchange any shares of Class B Preferred
Stock shall not prevent TCI from (i) paying any dividends on junior
stock solely in shares of junior stock or the redemption purchase or
other acquisition of junior stock solely in exchange for (together with
cash adjustment for fractional shares, if any) or (but only in the case
of a failure to pay dividends on any parity stock) through the
application of the proceeds from the sale of, shares of junior stock;
or (ii) the payment of dividends on any parity stock solely in shares
of parity stock and/or junior stock or the redemption, exchange,
purchase or other acquisition of Class B Preferred Stock or parity
stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of failure to pay
dividends on any parity stock) through the application of the proceeds
from the sale of, parity stock and/or junior stock.
(continued)
I-18
<PAGE> 21
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The Class B Preferred Stock will vote in any general election of
directors, will have one vote per share for such purpose and will vote
as a single class with the TCI common stock, the Class A Preferred
Stock and any other class or series of TCI preferred stock entitled to
vote in any general election of directors. The Class B Preferred Stock
will have no other voting rights except as required by the Delaware
General Corporation Law ("DGCL"). Without limiting the generality of
the foregoing, the number of authorized shares of Class B Preferred
Stock may be increased or decreased (but not below the number of shares
of Class B Preferred Stock then outstanding) by the affirmative vote of
the holders of 66-2/3% of the total voting power of the then
outstanding shares of TCI common stock and any class or series of TCI
preferred stock entitled to vote generally on matters presented to TCI
stockholders for a vote, voting together as a single class, and the
Class B Preferred Stock will not be entitled to vote with respect to
any proposed amendment to the TCI Charter that would create or
designate any class or series of TCI preferred stock that would rank
prior to, pari passu, or junior to the Class B Preferred Stock.
Series Preferred Stock. The TCI Series Preferred Stock will be
issuable, from time to time, in one or more series, with such
designations, preferences and relative participating, option or other
special rights, qualifications, limitations or restrictions thereof, as
shall be stated and expressed in a resolution or resolutions providing
for the issue of such series adopted by the TCI Board.
All shares of any one series of the TCI Series Preferred Stock are
required to be alike for every particular and all shares are required
to rank equally and be identical in all respects, except insofar as
they may vary with respect to matters which the TCI Board is expressly
authorized by the TCI Charter to determine in the resolution or
resolutions providing for the issue of any series of the TCI Series
Preferred Stock.
Series C Convertible Preferred Stock. TCI has issued 70,559 shares of a
series of TCI Series Preferred Stock designated "Convertible Preferred
Stock, Series C," (the "Series C Preferred Stock") as partial
consideration for an acquisition by TCI .
Each share of Series C Preferred Stock is convertible, at the option of
the holders, into 100 shares of TCI Class A common stock, subject to
anti-dilution adjustments. The dividend, liquidation and redemption
features of the Series C Preferred Stock, each of which are discussed
in greater detail below, will be determined by reference to the
liquidation value of the TCI Series C Preferred Stock, which as of any
date of determination is equal, on a per share basis, to the sum of (i)
$2,375, plus (ii) all dividends accrued on such share through the
dividend payment date on or immediately preceding such date of
determination to the extent not paid on or before such date, plus
(iii), for purposes of determining liquidation and redemption payments,
all unpaid dividends accrued on the sums or clauses (i) and (ii) above,
to such date of determination.
(continued)
I-19
<PAGE> 22
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Subject to the prior preferences and other rights of any class or
series of TCI preferred stock ranking pari passu with the Series C
Preferred Stock, the holders of Series C Preferred Stock will be
entitled to receive and, subject to any prohibition or restriction
contained in any instrument evidencing indebtedness of TCI, TCI will be
obligated to pay preferential cumulative cash dividends out of funds
legally available therefor. Dividends will accrue cumulatively at an
annual rate of 5-1/2% of the liquidation value per share, whether or
not such dividends are declared or funds are legally or contractually
available for payment of dividends, except that if TCI fails to redeem
shares of Series C Preferred Stock required to be redeemed on a
redemption date, dividends will thereafter accrue cumulatively at an
annual rate of 15% of the liquidation value per share. Accrued
dividends will be payable quarterly on January 1, April 1, July 1 and
October 1 of each year, commencing on the first dividend payment date
after the issuance of the Series C Preferred Stock. Dividends not paid
on any dividend payment date will be added to the liquidation value on
such date and remain a part thereof until such dividends and all
dividends accrued thereon are paid in full. Dividends will accrue on
unpaid dividends at the rate of 5-1/2% per annum, unless such
dividends remain unpaid for two consecutive quarters in which event
such rate will increase to 15% per annum. The Series C Preferred Stock
will rank prior to the TCI common stock and Class B Preferred Stock and
pari passu with the Class A Preferred Stock with respect to the
declaration and payment of dividends.
Upon the dissolution, liquidation or winding up of TCI, holders of the
Series C Preferred Stock will be entitled to receive from the assets of
TCI available for distribution to stockholders an amount in cash, per
share, equal to the liquidation value. The Series C Preferred Stock
will rank prior to the TCI common stock and Class B Preferred Stock and
pari passu with the Class A Preferred Stock as to any such
distributions.
The Series C Preferred Stock will be subject to optional redemption at
any time after the seventh anniversary of its issuance, in whole or in
part, by TCI at a redemption price, per share, equal to the then
liquidation value of the Series C Preferred Stock.
(continued)
I-20
<PAGE> 23
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
For so long as any dividends are in arrears on the Series C Preferred
Stock or any class or series of TCI preferred stock ranking pari passu
(including the Class A Preferred Stock) with the Series C Preferred
Stock and until all dividends accrued up to the immediately preceding
dividend payment date on the Series C Preferred Stock and such parity
stock shall have been paid or declared and set apart so as to be
available for payment in full thereof and for no other purpose, TCI may
not redeem or otherwise acquire any shares of Series C Preferred Stock,
any such parity stock or any class or series of its preferred stock
ranking junior (including the TCI common stock and Series C Preferred
Stock and such parity stock are redeemed. If TCI fails to redeem shares
of Series C Preferred Stock required to be redeemed on a redemption
date, and until all such shares are redeemed in full, TCI may not
redeem any such parity stock or junior stock, or otherwise acquire any
shares of such stock or Series C Preferred Stock. Nothing contained in
the two immediately preceding sentences shall prevent TCI from
acquiring (i) shares of Series C Preferred Stock and any such parity
stock pursuant to a purchase or exchange offer made to holders of all
outstanding shares of Series C Preferred Stock and such parity stock,
if (a) as to holders of all outstanding shares of Series C Preferred
Stock, the terms of the purchase or exchange offer for all such shares
are identical, (b) as to holders for all outstanding shares of a
particular series or class of parity stock, the terms of the purchase
or exchange offer for all such shares are identical and (c) as among
holders of all outstanding shares of Series C Preferred Stock and
parity stock, the terms of each purchase or exchange offer are
substantially identically relative to the respective liquidation prices
of the shares of Series C Preferred Stock and each series or class of
such parity stock, or (ii) shares of Series C Preferred Stock, parity
stock or junior stock in exchange for, or through the application of
the proceeds of the sale of, shares of junior stock.
The Series C Preferred Stock will be subject to restrictions on
transfer although it will have certain customary registration rights
with respect to the underlying shares of TCI Class A common stock. The
Series C Preferred Stock will vote on all matters submitted to a vote
of the holders of the TCI common stock, will have one vote for each
share of TCI Class A common stock into which the shares of Series C
Preferred Stock are converted for such purpose, and will vote as a
single class with the TCI common stock. The Series C Preferred Stock
will have no other voting rights except as required by the DGCL and
except that the consent of the holders of record of shares representing
at least two-thirds of the liquidation value of the outstanding shares
of the Series C Preferred Stock will be necessary to (i) amend the
designation, rights, preferences and limitations of the Series C
Preferred Stock as set forth in the TCI Charter and (ii) to create or
designate any class or series of TCI preferred stock that would rank
prior to the Series C Preferred Stock. Without limiting the generality
of the foregoing, the number of authorized shares of Series C Preferred
Stock may be increased or decreased (but not below the number of shares
of Series C Preferred Stock then outstanding) by the affirmative vote of
the holders of 66-2/3 of the total voting power of the then outstanding
shares of TCI common stock and any class or series of TCI preferred
stock entitled to vote generally on matters presented to TCI
stockholders for a vote, voting together as a single class, and the
Series C Preferred Stock will not be entitled to vote with respect to
any proposed amendment to the TCI Charter that would create or
designate any class or series of TCI preferred stock that would rank
pari passu with, or junior to the Series C Preferred Stock.
(continued)
I-21
<PAGE> 24
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Redeemable Convertible Preferred Stock, Series E. Subsequent to
September 30, 1994, the Company reorganized its subsidiaries based upon
four lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital. In
connection with such reorganization, the Board of Directors created and
authorized the issuance of the Redeemable Convertible Preferred Stock,
Series E ("Series E Preferred Stock"), par value $.01 per share. The
Company is authorized to issue 400,000 shares. Subsidiaries of TCI hold
all of the issued and outstanding shares of such stock, amounting to
246,402 shares. All such preferred stock will eliminate in
consolidation.
The holders of the Series E Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of
unrestricted funds legally available therefor, cumulative dividends, in
preference to dividends on any stock that ranks junior to the Series E
Preferred Stock (currently the Class A common stock, the Class B common
stock and the Class B Preferred Stock), that shall accrue on each share
of Series E Preferred Stock at the rate of 5.0% per annum of the Stated
Liquidation Value ($22,303 per share). Dividends are fully cumulative
and are payable in cash. The Series E Preferred Stock ranks on parity
with the Class A Preferred Stock and the Series C Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation.
The Series E Preferred may be redeemed at the option of the Company.
The Company may elect to pay the redemption price by issuing to the
holder thereof a number of shares of Class A common stock equal to the
aggregate redemption price of such shares divided by the Average Quoted
Price (as defined) of a share of Class A common stock.
Unless previously called for redemption, shares of Series E Preferred
Stock shall be convertible, at the option of the holder thereof, into
shares of Class A common stock at any time subsequent to a duly
approved amendment to the Company's Restated Certificate of
Incorporation increasing the number of Class A common shares to a
number that would permit conversion of all shares of Series E Preferred
Stock then outstanding into Class A common stock. The Series E
Preferred Stock may be converted into Class A common stock at the
initial conversion rate of 1,000 shares of Class A common stock for one
share of the Series E Preferred Stock.
The holders of the Series E Preferred Stock have the right to vote at
any annual or special meeting of stockholders for the purpose of
electing directors. Each share of Series E Preferred Stock shall have
one vote for such purpose.
(continued)
I-22
<PAGE> 25
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Stock Options
The Company has adopted the Tele-Communications, Inc. 1994 Stock
Incentive Plan (the "Plan"). The Plan provides for awards to be made in
respect of a maximum of 16 million shares of TCI Class A common stock.
Awards may be made as grants of stock options, stock appreciation
rights, restricted shares, stock units or any combination thereof.
Pursuant to the TCI/Liberty Merger Agreement and certain assumption
agreements, stock options and/or stock appreciation rights granted (or
assumed) by Old TCI and stock options and/or stock appreciation rights
granted by Liberty were assumed by the Company and new options and/or
stock appreciation rights were substituted under the Plan. The
following descriptions represent the terms of the assumed options
and/or stock appreciation rights.
Stock options to purchase 180,508 shares of TCI Class A common stock at
an adjusted purchase price of $17.25 per share were outstanding at
September 30, 1994. During the nine months ended September 30, 1994,
options to acquire 33,000 shares were exercised and options for 3,500
shares were canceled. Such options expired on November 9, 1994.
Stock options to acquire 162,228 shares of TCI Class A common stock at
adjusted purchase prices ranging from $8.83 to $18.63 per share were
outstanding at September 30, 1994. During the nine months ended
September 30, 1994, options to acquire 5,100 shares were exercised and
no options were canceled. Options to acquire 19,428 shares of TCI Class
A common stock expire August 14, 1995. Options to acquire 142,800
shares of TCI Class A common stock expire December 15, 1998.
Stock options in tandem with stock appreciation rights to purchase
3,970,000 shares of Class A common stock at a purchase price of $16.75
per share were outstanding at September 30, 1994. Such options become
exercisable and vest evenly over five years, first became exercisable
beginning November 11, 1993 and expire on November 11, 2002.
Stock options in tandem with stock appreciation rights to purchase
1,947,500 shares of TCI Class A common stock at a purchase price of
$16.75 per share were outstanding at September 30, 1994. Such options
become exercisable and vest evenly over four years, first became
exercisable beginning October 12, 1994 and expire on October 12, 2003.
During the nine months ended September 30, 1994, stock options covering
7,500 shares of Class A common stock were canceled upon termination of
employment.
Stock options in tandem with stock appreciation rights to purchase
2,000,000 shares of TCI Class A common stock at a purchase price of
$16.75 per share were outstanding at September 30, 1994. On
November 12, 1993, twenty percent of such options vested and became
exercisable immediately and the remainder become exercisable evenly
over 4 years. The options expire October 12, 1998.
(continued)
I-23
<PAGE> 26
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Stock options in tandem with stock appreciation rights to acquire
54,600 share of TCI Class A common stock at an adjusted purchase price
of $19.56 were outstanding at September 30, 1994. The options vest in
five equal annual installments commencing June 3, 1994 and expire in
June 2003.
Stock appreciation rights with respect to 1,423,500 shares of TCI Class
A common stock were outstanding at September 30, 1994. These rights
have an adjusted strike price of $0.82 per share, become exercisable
and vest evenly over seven years, beginning March 28, 1992. Stock
appreciation rights expire on March 28, 2001.
Estimated compensation relating to stock appreciation rights has been
recorded through September 30, 1994, but is subject to future
adjustment based upon market value, and ultimately, on the final
determination of market value when the rights are exercised.
Other
In connection with the exercise of a stock option by an
officer/director of Liberty, a note was given to Liberty as partial
payment of the exercise price. This note bears interest at 7.54% per
annum. At the date of the Mergers, the Company recorded the net assumed
note receivable, amounting to approximately $15 million, from such
officer as a reduction of stockholders' equity.
The shares issued by Liberty upon exercise of this option, together
with all subsequent dividends and distributions thereon (collectively
totaling 16,000,000 shares of Liberty Class B common stock and 200,000
shares of Liberty Class E Preferred Stock, the "Option Units"), were
subject to repurchase by Liberty under certain circumstances. Such
shares were exchanged for 15,600,000 shares of TCI Class A common stock
and 200,000 shares of Class B Preferred Stock in the Mergers. The
Company's repurchase right terminates as to 20% of the Option Units per
year, commencing March 28, 1992, and will terminate as to all of the
Option Units in the event of death, disability or under certain other
circumstances.
(continued)
I-24
<PAGE> 27
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
The excess of consideration received on debentures converted or options
exercised over the par value of the stock issued is credited to
additional paid-in capital.
At September 30, 1994, there were 55,505,226 shares of TCI Class A
common stock reserved for issuance under exercise privileges related to
options and convertible debt securities described in this note 9 and in
note 8. In addition, one share of Class A common stock is reserved for
each share of Class B common stock.
(10) Commitments and Contingencies
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993,
the Federal Communications Commission ("FCC") adopted certain rate
regulations required by the 1992 Cable Act and imposed a moratorium on
certain rate increases. As a result of such actions, the Company's
basic and tier service rates and its equipment and installation charges
(the "Regulated Services") are subject to the jurisdiction of local
franchising authorities and the FCC. Basic and tier service rates are
evaluated against competitive benchmark rates as published by the FCC,
and equipment and installation charges are based on actual costs. Any
rates for Regulated Services that exceeded the benchmarks were reduced
as required by the 1993 rate regulations. The rate regulations do not
apply to the relatively few systems which are subject to "effective
competition" or to services offered on an individual service basis,
such as premium movie and pay-per-view services.
The Company believes that it has complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the Company's rates for regulated services are
subject to review by the FCC, if a complaint has been filed, or the
appropriate franchise authority, if such authority has been certified.
If, as a result of the review process, a system cannot substantiate its
rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received.
Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion
of all other Regulated Service rates would be retroactive to the later
of September 1, 1993 or one year prior to the certification date of the
applicable franchise authority. The amount of refunds, if any, which
could be payable by the Company in the event that systems' rates are
successfully challenged by franchising authorities is not considered
to be material.
(continued)
I-25
<PAGE> 28
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
Comcast had the right, through December 31, 1994, to require TCI to
purchase or cause to be purchased from Comcast all shares of Heritage
Communications, Inc. ("Heritage") directly or indirectly owned by
Comcast for either cash or assets or, at TCI's election shares of TCI
common stock. On October 24, 1994, the Company and Comcast entered into
a purchase agreement whereby the Company would repurchase the entire
19.9% minority interest in Heritage owned by Comcast for an aggregate
consideration of approximately $290 million, the majority of which is
payable in shares of TCI Class A common stock. Such acquisition is
expected to consummate in 1995.
The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion
picture studios through December 31, 2006 (the "Film License
Obligations"). The aggregate minimum liability under certain of the
license agreements is approximately $368 million. The aggregate amount
of the Film License Obligations under other license agreements is not
currently estimable because such amount is dependent upon the number of
qualifying films produced by the motion picture studios, the amount of
United States theatrical film rentals for such qualifying films, and
certain other factors. Nevertheless, the Company's aggregate payments
under the Film License Obligations could prove to be significant.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $247 million at September 30, 1994.
In 1993, the President of Home Shopping Network, Inc. ("HSN") received
stock appreciation rights with respect to 984,876 shares of HSN's
common stock at an exercise price of $8.25 per share. These rights
vest over a four year period and are exercisable until February 23,
2003. The stock appreciation rights will vest upon termination of
employment other than for cause and will be exercisable for up to one
year following the termination of employment. In the event of a change
in ownership control of HSN, all unvested stock appreciation rights
will vest immediately prior to the change in control and shall remain
exercisable for a one year period. Stock appreciation rights not
exercised will expire to the extent not exercised. These rights may
be exercised for cash or, so long as HSN is a public company, for
shares of HSN's common stock equal to the excess of the fair market
value of each share of common stock over $8.25 at the exercise date.
The stock appreciation rights also will vest in the event of death or
disability. Estimated compensation related to stock appreciation
rights has been recorded through September 30, 1994, but it is
subject to future adjustment based upon market value, and ultimately
on the final determination of market value when the rights are
exercised.
The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. In the
opinion of management, it is expected that amounts, if any, which may
be required to satisfy such contingencies will not be material in
relation to the accompanying consolidated financial statements.
(11) Proposed Merger with TeleCable Corporation
As of August 8, 1994, TCI, TCIC and TeleCable Corporation ("TeleCable")
entered into a merger agreement whereby TeleCable will be merged with
and into TCIC. The aggregate purchase price of $1.6 billion will be
paid with shares of TCI Class A common stock (currently estimated to be
approximately 42 million shares), assumption of liabilities amounting
to approximately $300 million and 1 million shares of a new TCI
convertible preferred stock with an aggregate initial liquidation value
of $300 million. Such preferred stock shall accrue dividends at 5-1/2%
per annum, shall be convertible at the option of its holders into 10
million shares of TCI Class A common stock and shall be redeemable by
TCI after 5 years or the holder can cause TCI to redeem after 10 years.
The merger requires the approval of the shareholders of TeleCable and
various franchise and other governmental authorities.
(continued)
I-26
<PAGE> 29
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly TCI/Liberty Holding Company)
Notes to Consolidated Financial Statements
(12) Subsequent Event
Subsequent to September 30, 1994, subsidiaries of the Company, Comcast,
Cox Cable Communications, Inc. ("Cox") and Sprint Corporation
("Sprint") formed a partnership ("WirelessCo") to engage in the
business of providing wireless communications services on a nationwide
basis. Through WirelessCo, the partners intend to bid for broadband
personal communications services ("PCS") licenses in auctions (the "PCS
Auctions") to be conducted by the FCC. WirelessCo has applied for
eligibility to bid for licenses in 39 of the 51 Major Trading Areas
("MTAs") for which PCS licenses will be auctioned by the FCC commencing
in December 1994. WirelessCo may also invest in, affiliate with or
acquire licenses from successful bidders in the PCS Auctions. The
Company owns a 30% interest in WirelessCo. Subsidiaries of Cox, Sprint
and the Company have also formed a separate partnership, in which the
Company owns a 35.3% interest, to bid for PCS licenses for the
Philadelphia MTA. The Company cannot predict the cost of obtaining
licenses in the PCS Auctions or the likelihood that WirelessCo and the
Philadelphia partnership will be successful bidders for any of the PCS
licenses for which they have applied to bid. If the respective bidding
strategies of WirelessCo and the Philadelphia partnership are
successful, however, the capital required to fund the license costs and
the construction of the PCS systems will be substantial and the
Company's share thereof would represent a material increase in its
capital requirements.
The Company, Comcast, Cox (collectively, the "Cable Partners") and
Sprint have also agreed upon the basis upon which they would negotiate
a definitive agreement for the formation of a partnership ("NewTelco")
to engage in the business of providing local wireline communications
services to residences and businesses on a nationwide basis, using
cable television facilities of the Cable Partners and other cable
television operators that agree to affiliate with NewTelco. The parties
intend that the Cable Partners would contribute their interests in
Teleport Communications Group, Inc. ("TCG") and its affiliated entities
and other competitive access businesses to NewTelco. The Company
currently owns an approximately 29.9% interest in TCG and would own a
30% interest in NewTelco. The modification or repeal of existing
regulatory and legislative barriers to competition in the local
telephony market will be necessary in order for NewTelco to provide its
proposed services in most states. Formation of NewTelco is subject to
certain conditions including the negotiation of a definitive
partnership agreement and contribution agreement. The contributions of
TCG and other competitive access businesses to NewTelco will be
subject, among other things, to the receipt of necessary regulatory and
other consents and approvals.
I-27
<PAGE> 30
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ ------------
Assets amounts in millions
- ------
<S> <C> <C>
Cash $ -- 1
Trade and other receivables, net 227 232
Due from affiliated companies 64 --
Investment in Liberty (note 4) -- 489
Investments in other affiliates, accounted for
under the equity method, and related
receivables (note 5) 891 645
Investment in TBS (note 6) 764 491
Property and equipment, at cost:
Land 73 73
Distribution systems 7,546 6,629
Support equipment and buildings 919 818
-------- ------
8,538 7,520
Less accumulated depreciation 3,067 2,585
-------- ------
5,471 4,935
-------- ------
Franchise costs 10,802 10,620
Less accumulated amortization 1,620 1,423
-------- ------
9,182 9,197
-------- ------
Other assets, at cost, net of amortization 609 530
-------- ------
$ 17,208 16,520
======== ======
</TABLE>
(continued)
I-37
<PAGE> 31
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
Liabilities and Stockholders' Equity amounts in millions
- ------------------------------------
<S> <C> <C>
Accounts payable $ 143 124
Accrued interest 148 157
Other accrued expenses 580 500
Debt (note 7) 10,479 9,900
Deferred income taxes 3,426 3,310
Other liabilities 89 114
-------- ------
Total liabilities 14,865 14,105
-------- ------
Minority interests in equity
of consolidated subsidiaries 312 285
Redeemable preferred stocks -- 18
Stockholders' equity (note 8):
Class A common stock, $1 par value.
Authorized 904,000 shares in 1994 and
1,000,000,000 in 1993; issued 811,655
shares in 1994 and 481,837,347 shares
in 1993 1 482
Class B common stock, $1 par value.
Authorized 96,000 shares in 1994 and
100,000,000 in 1993; issued 94,447 shares
in 1994 and 47,258,787 shares in 1993 -- 47
Additional paid-in capital 2,842 2,293
Cumulative foreign currency
translation adjustment (5) (29)
Unrealized holding gains for
available-for-sale securities 169 --
Accumulated deficit (287) (348)
-------- ------
2,720 2,445
Treasury stock, at cost (79,335,038
shares of Class A common stock in 1993) -- (333)
Investment in TCI (notes 1 and 4) (689) --
-------- ------
Total stockholders' equity 2,031 2,112
-------- ------
Commitments and contingencies (note 9)
$ 17,208 16,520
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-38
<PAGE> 32
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
------------------- ------------------
1994 1993 1994 1993
------ ------ ------ ------
amounts in millions,
except per share amounts
<S> <C> <C> <C> <C>
Revenue (note 4) $1,072 1,044 3,213 3,104
Operating costs and expenses:
Operating (note 4) 336 298 980 889
Selling, general and administrative 313 276 908 806
Compensation relating to stock
appreciation rights -- 6 -- 9
Adjustment to compensation relating to
stock appreciation rights 12 -- (6) --
Depreciation 158 158 494 454
Amortization 72 70 217 217
------ ----- ----- -----
891 808 2,593 2,375
------ ----- ----- -----
Operating income 181 236 620 729
Other income (expense):
Interest expense (203) (186) (566) (549)
Interest and dividend income 6 11 26 23
Share of earnings of Liberty
(note 4) 101 11 125 4
Share of losses of other affiliates,
net (note 5) (29) (17) (59) (44)
Gain on disposition of assets 2 4 7 49
Loss on early extinguishment of debt (1) (6) (3) (17)
Minority interests in losses (earnings)
of consolidated subsidiaries, net 1 (2) 1 (6)
Other, net (6) (2) (9) (6)
------ ----- ----- -----
(129) (187) (478) (546)
------ ----- ----- -----
Earnings before income taxes 52 49 142 183
Income tax expense (29) (114) (81) (169)
------ ----- ----- -----
Net earnings (loss) 23 (65) 61 14
Dividend requirement on redeemable
preferred stocks -- (1) -- (2)
------ ----- ----- -----
Net earnings (loss) attributable
to common shareholders $ 23 (66) 61 12
====== ===== ===== =====
Primary and fully diluted earnings (loss)
attributable to common shareholders
per common and common equivalent
share (note 2) (.14) .03
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
I-39
<PAGE> 33
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1994
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
Common stock Additional currency available-
------------------ paid-in translation for-sale Accumulated
Class A Class B capital adjustment securities deficit
------- ------- ---------- ---------- ---------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $482 47 2,293 (29) -- (348)
Net earnings -- -- -- -- -- 61
Conversion of redeemable
preferred stock 1 -- 17 -- -- --
Issuance of common stock
upon conversion of notes 3 -- -- -- -- --
(note 7)
Exchange of TCIC common
stock and Liberty common
stock and preferred stock
owned by subsidiaries of
TCIC for TCI common
stock and preferred
stock in the Mergers -- -- -- -- -- --
Reclassification and change
of common stock (note 8) (485) (47) 532 -- -- --
Foreign currency
translation adjustment -- -- -- 24 -- --
Unrealized holding gains
for available-for-sale
securities (note 6) -- -- -- -- 169 --
---- --- ----- ---- --- ----
Balance at September 30, 1994 $ 1 -- 2,842 (5) 169 (287)
==== === ===== ==== === ====
</TABLE>
<TABLE>
<CAPTION>
Investment Total
Treasury in stockholders'
stock TCI equity
--------- ---------- ------------
amounts in millions
<S> <C> <C> <C>
Balance at January 1, 1994 (333) -- 2,112
Net earnings -- -- 61
Conversion of redeemable
preferred stock -- -- 18
Issuance of common stock
upon conversion of notes -- -- 3
(note 7)
Exchange of TCIC common
stock and Liberty common
stock and preferred stock
owned by subsidiaries of
TCIC for TCI common
stock and preferred
stock in the Mergers 333 (689) (356)
Reclassification and change
of common stock (note 8) -- -- --
Foreign currency
translation adjustment -- -- 24
Unrealized holding gains
for available-for-sale
securities (note 6) -- -- 169
---- ----- -----
Balance at September 30, 1994 -- (689) 2,031
==== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
I-40
<PAGE> 34
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1994 1993
------ ------
amounts in millions
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 61 14
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 711 671
Compensation relating to stock appreciation rights -- 9
Adjustment to compensation relating to stock
appreciation rights (6) --
Share of earnings of Liberty (125) (4)
Share of losses of other affiliates 59 44
Deferred income tax expense 37 146
Minority interests in losses (earnings) (1) 6
Amortization of debt discount 1 22
Loss on early extinguishment of debt 3 17
Gain on disposition of assets (7) (49)
Payment of premium received on preferred stock
investment redemption -- 14
Noncash interest and dividend income (6) (5)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables 16 (13)
Change in accrued interest (6) 39
Change in other accruals and payables 85 14
------- ------
Net cash provided by operating activities 822 925
------- ------
Cash flows from investing activities:
Cash paid for acquisitions (260) (73)
Capital expended for property and equipment (944) (686)
Proceeds from disposition of assets 32 146
Payment received on preferred stock investment
redemption -- 183
Additional investments in and
loans to affiliates and others (312) (257)
Repayment of loans by affiliates and others 194 45
Return of capital from affiliates 22 1
Other investing activities (118) (104)
------- ------
Net cash used in investing activities (1,386) (745)
------- ------
Cash flows from financing activities:
Borrowings of debt 3,014 5,653
Repayments of debt (2,448) (5,769)
Preferred stock dividends of subsidiaries (3) (4)
Preferred stock dividends -- (2)
Repurchase of preferred stock -- (92)
Issuance of common stock -- 6
Repurchases of common stock -- (4)
------- ------
Net cash provided (used) by financing activities 563 (212)
------- ------
Net decrease in cash (1) (32)
Cash at beginning of period 1 34
------- ------
Cash at end of period $ -- 2
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-41
<PAGE> 35
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
September 30, 1994
(unaudited)
(1) General
The accompanying consolidated financial statements include the accounts
of Old TCI and those of all majority-owned subsidiaries ("TCIC"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
The Mergers were consummated on August 4, 1994 and were structured as a
tax free exchange of Class A and Class B shares of both companies and
preferred stock of Liberty for like shares of a newly formed holding
company, TCI/Liberty Holding Company. In connection with the Mergers,
Old TCI changed its name to TCI Communications, Inc. and TCI/Liberty
Holding Company changed its name to Tele-Communications, Inc. Old TCI
shareholders received one share of TCI for each of their shares.
Liberty common shareholders received 0.975 of a share of TCI for each
of their common shares. Upon consummation of the Mergers, subsidiaries
of TCIC exchanged the 79,335,038 shares of Old TCI Class A common stock
held by such subsidiaries for 79,335,038 shares of TCI Class A common
stock. Such ownership is reflected at historical cost in stockholders'
equity as Investment in TCI.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of operations
for any interim period are not necessarily indicative of results for
the full year. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto contained in TCIC's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1993.
Certain amounts have been reclassified for comparability with the 1994
presentation.
(2) Earnings (Loss) Per Common and Common Equivalent Share
Primary earnings per common and common equivalent share attributable to
common shareholders for the nine months ended September 30, 1993 was
computed by dividing net earnings attributable to common shareholders
by the weighted average number of common and common equivalent shares
outstanding (431.9 million). Shares issuable upon conversion of the
Convertible Notes (see note 7) have not been included in the
computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.
(continued)
I-42
<PAGE> 36
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Fully diluted earnings per common and common equivalent share
attributable to common shareholders for the nine months ended September
30, 1993, was computed by dividing earnings attributable to common
shareholders by the weighted average number of common and common
equivalent shares outstanding (432.2 million). Shares issuable upon
conversion of the Convertible Notes (see note 7) and certain
convertible notes and preferred stock converted subsequent to September
30, 1993 have not been included in the computations for weighted average
shares outstanding because their inclusion would be anti-dilutive.
Loss per common share attributable to common shareholders for the three
months ended September 30, 1993 was computed by dividing net loss
attributable to common shareholders by the weighted average number of
common shares outstanding (430.8 million). Common stock equivalents
were not included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $574 million and $488 million for the nine
months ended September 30, 1994 and 1993, respectively. Also, during
these periods, cash paid for income taxes was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1994 1993
------ ------
amounts in millions
<S> <C> <C>
Common stock issued upon conversion
of redeemable preferred stock $ 18 --
===== ====
Reclassification and change of common
stock (note 8) $ 532 --
===== ====
Effect of foreign currency translation
adjustment on book value of foreign
equity investments $ 24 2
===== ====
Exchange of TCIC common stock owned by
subsidiaries of TCIC for common stock of
TCI, classified as Investment in TCI $ 333 --
===== ====
Exchange of Liberty common stock and
preferred stock owned by subsidiaries of
TCIC for TCI common stock and preferred
stock in the Mergers, classified as
Investment in TCI $ 356 --
===== ====
Reversal of deferred tax liability recorded
in the Mergers $ 38 --
===== ====
Unrealized gains, net of deferred income
taxes, on available-for-sale securities $ 169 --
===== ====
</TABLE>
(continued)
I-43
<PAGE> 37
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1994 1993
------ ------
amounts in millions
<S> <C> <C>
Noncash exchange of equity investments
and consolidated subsidiaries for
consolidated subsidiary $ 38 --
===== ===
Cash paid for acquisitions:
Fair value of assets acquired $ 312 80
Liabilities assumed (21) (7)
Minority interests in equity of
acquired entities (31) --
----- ---
Cash paid for acquisitions $ 260 73
===== ===
Common stock issued upon conversion
of notes $ 3 3
===== ===
Receipt of notes receivable upon
disposition of Liberty common
stock and preferred stock $ -- 182
===== ===
Noncash exchange of equity investment
for consolidated subsidiary and
equity investment $ -- 19
===== ===
Noncash capital contribution to CCT $ -- 22
===== ===
</TABLE>
(4) Investment in Liberty
TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070
shares of Liberty Class E Preferred Stock. Upon consummation of the
Mergers, TCIC received 3,390,833 shares of TCI Class A common stock and
55,070 shares of Class B Preferred Stock. The holders of the Class B
Preferred Stock will be entitled to one vote per share in any general
election of directors of TCI. Upon consummation of the Mergers, the
remaining classes of preferred stock of Liberty held by TCIC were
converted into shares of Class A Preferred Stock which has a
substantially equivalent fair market value. TCIC's ownership in TCI's
common stock, Class B Preferred Stock and Class A Preferred Stock have
been recorded as Investment in TCIC in stockholders' equity at TCIC's
historical cost.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and other
related party considerations, TCIC had accounted for its investment in
Liberty under the equity method. Accordingly, TCIC had not recognized
any income relating to dividends, including preferred stock dividends,
and TCIC recorded the earnings or losses generated by Liberty (by
recognizing 100% of Liberty's earnings or losses before deducting
preferred stock dividends) through the date the Mergers were
consummated.
(continued)
I-44
<PAGE> 38
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC and Liberty entered into the Option-Put Agreement, which was
amended on November 30, 1993. Under the amended Option-Put Agreement,
between January 1, 1996 and January 31, 1996, TCIC will have the
option to purchase all of Liberty's interest in CCT and the Mile Hi
Note for an amount equal to $77 million plus interest accruing at the
rate of 11.6% per annum on such amount from June 3, 1993. Between
April 1, 1995 and June 29, 1995, and between January 1, 1997 and
January 31, 1997, Liberty will have the right to require TCIC to
purchase Liberty's interest in CCT and the Mile Hi Note for an amount
equal to $77 million plus interest on such amount accruing at the rate
of 11.6% per annum from June 3, 1993.
TCIC purchases sports and other programming from certain subsidiaries
of Liberty. Charges to TCIC (which are based upon customary rates
charged to others) for such programming were $35 million and $33
million for the nine months ended September 30, 1994 and 1993,
respectively. Such amounts are included in operating expenses in the
accompanying consolidated statements of operations. Certain
subsidiaries of Liberty purchase from TCIC, at TCIC's cost plus an
administrative fee, certain pay television and other programming. In
addition, a consolidated subsidiary of Liberty pays a commission to
TCIC for merchandise sales to customers who are subscribers of TCIC's
cable systems. Aggregate commission and charges for such programming
were $12 million and $7 million for the nine months ended September 30,
1994 and 1993, respectively. Such amounts are recorded in revenue in
the accompanying consolidated statements of operations.
On July 11, 1994, Rainbow purchased a 49.9% general partnership
interest in AMC from Liberty under the terms of a buy/sell provision
contained in the AMC partnership agreement. In connection with the
purchase, Rainbow acquired an option to purchase the remaining 0.1%
general partnership interest in AMC from Liberty for less than $1
million. The proceeds of $180,249,000 included the economic benefit of
Liberty's consulting agreement with AMC assigned by Liberty to
Cablevision Systems Corporation, the parent company of Rainbow. The
gain recognized by Liberty in connection with the disposition of AMC
was $183 million.
(continued)
I-45
<PAGE> 39
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Summarized unaudited financial information of Liberty for the period
from January 1, 1994 through August 4, 1994 and for the nine months
ended September 30, 1993 is as follows:
<TABLE>
<CAPTION>
Consolidated Operations 1994 1993
----------------------- ------ ------
amounts in millions
<S> <C> <C>
Revenue $ 790 796
Operating expenses (726) (762)
Depreciation and amortization (32) (33)
----- ----
Operating income 32 1
Interest expense (22) (21)
Other, net 115 24
----- ----
Net earnings $ 125 4
===== ====
</TABLE>
(continued)
I-46
<PAGE> 40
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(5) Investments in Other Affiliates
Summarized unaudited results of operations for affiliates, other than
Liberty, accounted for under the equity method, are as follows:
<TABLE>
<CAPTION>
Nine months
Combined Operations ended
------------------- September 30,
1994 1993
------ ------
amounts in millions
<S> <C> <C>
Revenue $ 649 649
Operating expenses (613) (595)
Depreciation and amortization (102) (123)
------ -----
Operating loss (66) (69)
Interest expense (26) (48)
Other, net (160) (11)
------ -----
Net loss $ (252) (128)
====== =====
</TABLE>
TCIC has various investments accounted for under the equity method. Some
of the more significant investments held by TCIC at September 30, 1994
are TeleWest Communications plc (carrying value of $296 million),
Discovery Communications, Inc. (carrying value of $116 million) and
Teleport Communications Group, Inc. (carrying value of $105 million).
(continued)
I-47
<PAGE> 41
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Certain of TCIC's affiliates are general partnerships and any
subsidiary of TCIC that is a general partner in a general partnership
is, as such, liable as a matter of partnership law for all debts of
that partnership in the event liabilities of that partnership were to
exceed its assets.
(6) Investment in Turner Broadcasting System, Inc.
TCIC owns shares of a class of preferred stock of TBS which has voting
rights and are convertible into shares of TBS common stock. The holders
of those preferred shares, as a group, are entitled to elect seven of
fifteen members of the board of directors of TBS, and TCIC appoints
three such representatives. However, voting control over TBS continues
to be held by its chairman of the board and chief executive officer.
TCIC's total holdings of TBS common and preferred stocks represent an
approximate 12% voting interest for those matters for which preferred
and common stock vote as a single class.
In May 1993, the Financial Accounting Standards Board issued Statement
No. 115, effective for fiscal years beginning after December 15, 1993.
Under the new rules, debt securities that TCIC has both the positive
intent and ability to hold to maturity are carried at amortized cost.
Debt securities that TCIC does not have the positive intent and ability
to hold to maturity and all marketable equity securities are classified
as available-for-sale or trading and carried at fair value. Unrealized
holding gains and losses on securities classified as available-for sale
are carried as a separate component of shareholders' equity. Unrealized
holding gains and losses on securities classified as trading are
reported in earnings.
(continued)
I-48
<PAGE> 42
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC applied the new rules beginning in the first quarter of 1994.
Application of the new rules resulted in a net increase of $191 million
in the first quarter of 1994, adjusted to $169 million at September 30,
1994, to stockholders' equity, representing the recognition of
unrealized appreciation, net of taxes, for TCIC's investment in equity
securities determined to be available-for-sale. The majority of such
unrealized gain was reflected on TCIC's investment in TBS common stock.
TCIC holds no material debt securities.
(7) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
amounts in millions
<S> <C> <C>
Parent company debt:
Senior notes $ 5,412 5,052
Bank credit facilities 252 80
Commercial paper 292 44
Other debt 2 2
-------- -----
5,958 5,178
Debt of subsidiaries:
Bank credit facilities 3,340 3,264
Notes payable 1,039 1,321
Convertible notes (a) 45 47
Other debt 97 90
-------- -----
$ 10,479 9,900
======== =====
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $186 million and $197 million at September 30, 1994
and December 31, 1993, respectively, mature on December 18,
2021. The notes require (so long as conversion of the notes has
not occurred) an annual interest payment through 2003 equal to
1.85% of the face amount of the notes. During July and August
of 1994, certain of these notes were converted into 2,350,000
shares of TCIC Class A common stock. In conjunction with the
Mergers, these notes became convertible into TCI Class A common
stock. At September 30, 1994, the notes were convertible, at
the option of the holders, into an aggregate of 38,710,990
shares of TCI Class A common stock.
TCIC's bank credit facilities and various other debt instruments
generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and
financial ratios (primarily the ratios of cash flow to total debt and
cash flow to debt service, as defined), and include certain limitations
on indebtedness, investments, guarantees, dispositions, stock
repurchases and/or dividend payments.
As security for borrowings under one of its credit facilities, TCIC
pledged a portion of the common stock (with a quoted market value of
approximately $580 million at September 30, 1994) it holds of TBS.
(continued)
I-49
<PAGE> 43
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The fair value of TCIC's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered
to TCIC for debt of the same remaining maturities. The fair value of
debt, which has a carrying value of $10,479 million, was $10,616
million at September 30, 1994.
In order to provide interest rate protection on a portion of its
variable rate indebtedness, TCIC has entered into various interest rate
exchange agreements. TCIC is exposed to credit losses for the periodic
settlements of amounts due under these interest rate exchange
agreements in the event of nonperformance by the other parties to the
agreements. However, TCIC does not anticipate nonperformance by the
counterparties.
The fair value of the interest rate exchange agreements is the
estimated amount that TCIC would pay or receive to terminate the
agreements at September 30, 1994, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
TCIC would be required to pay $161 million at September 30, 1994 to
terminate the agreements.
TCIC and certain of its subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper.
TCIC remains the sole obligor with respect to all indebtedness and
other obligations of Old TCI outstanding at the time the Mergers were
consummated and TCI has not assumed any of such indebtedness or other
obligations.
(8) Stockholders' Equity
Common Stock
The Class A common stock has one vote per share and the Class B common
stock has ten votes per share. Each share of Class B common stock is
convertible, at the option of the holder, into one share of Class A
common stock.
Upon a Restated Certificate of Incorporation becoming effective in
accordance with the General Corporation Law of the State of Delaware
(the "Effective Time"), each 500.3735 shares of Class A common stock
and Class B common stock issued and outstanding immediately prior to
the Effective Time was reclassified and changed into one share of Class
A common stock and one share of Class B common stock.
Stock Options
TCIC had granted or assumed certain options and/or stock appreciation
rights. All such options and/or stock appreciation rights previously
granted by TCIC were assumed by TCI in conjunction with the Mergers.
Estimates of the compensation relating to the stock appreciation rights
granted to employees of TCIC have been recorded through September 30,
1994, but are subject to future adjustment based upon market value and,
ultimately, on the final determination of market value when the rights
are exercised.
(continued)
I-50
<PAGE> 44
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(9) Commitments and Contingencies
On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993, the
FCC adopted certain rate regulations required by the 1992 Cable Act and
imposed a moratorium on certain rate increases. As a result of such
actions, TCIC's Regulated Services are subject to the jurisdiction of
local franchising authorities and the FCC. Basic and tier service rates
are evaluated against competitive benchmark rates as published by the
FCC, and equipment and installation charges are based on actual costs.
Any rates for Regulated Services that exceeded the benchmarks were
reduced as required by the 1993 rate regulations. The rate regulations
do not apply to the relatively few systems which are subject to
"effective competition" or to services offered on an individual service
basis, such as premium movie and pay-per-view services.
TCIC believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting
provisions. However, TCIC's rates for regulated services are subject to
review by the FCC, if a complaint has been filed, or the appropriate
franchise authority, if such authority has been certified. If, as a
result of the review process, a system cannot substantiate its rates,
it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received.
Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion
of all other Regulated service rates would be retroactive to the later
of September 1, 1993 or one year prior to the certification date of the
applicable franchise authority. The amount of refunds, if any, which
could be payable by TCIC in the event that systems' rates are
successfully challenged by franchising authorities is not considered to
be material.
Comcast had the right, through December 31, 1994, to require TCI to
purchase or cause to be purchased from Comcast all shares of Heritage
directly or indirectly owned by Comcast for either cash or assets or at
TCI's election, shares of TCI common stock. On October 24, 1994, TCIC
and Comcast entered into a purchase agreement whereby TCIC would
repurchase the entire 19.9% minority interest in Heritage owned by
Comcast for an aggregate consideration of approximately $290 million,
the majority of which is payable in shares of TCI Class A common stock.
Such acquisition is expected to consummate in 1995.
TCIC is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion
picture studios from January 1, 1993 through December 31, 2002 (the
"Film License Liability"). The aggregate minimum liability under
certain of the license agreements is approximately $192 million. The
aggregate amount of the Film License Liability under other license
agreements is not currently estimable because such amount is dependent
upon the number of qualifying films produced by the motion picture
studios, the amount of United States theatrical film rentals for such
qualifying films, and certain other factors. Nevertheless, TCIC's
aggregate payments under the Film License Liability could prove to be
significant.
(continued)
I-51
<PAGE> 45
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies without outstanding balances of approximately $227
million at September 30, 1994.
TCIC has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. In the opinion of
management, it is expected that amounts, if any, which may be required
to satisfy such contingencies will not be material in relation to the
accompanying consolidated financial statements.
(10) Proposed Merger with TeleCable Corporation
As of August 8, 1994, TCI, TCIC and TeleCable entered into a merger
agreement whereby TeleCable will be merged with and into TCIC. The
aggregate purchase price of $1.6 billion will be paid with shares of
TCI Class A common stock (currently estimated to be approximately 42
million shares), assumption of liabilities amounting to approximately
$300 million and 1 million shares of a new TCI convertible preferred
stock with an aggregate initial liquidation value of $300 million. Such
preferred stock shall accrue dividends at 5-1/2% per annum, shall be
convertible at the option of its holders into 10 million shares of TCI
Class A common stock and shall be redeemable by TCI after 5 years or
the holder can cause TCI to redeem after 10 years. The merger requires
the approval of the shareholders of TeleCable and various franchise and
other governmental authorities.
(11) Subsequent Event
Subsequent to September 30, 1994, subsidiaries of the Company, Comcast,
Cox and Sprint formed WirelessCo to engage in the business of providing
wireless communications services on a nationwide basis. Through
WirelessCo, the partners intend to bid for PCS licenses in PCS Auctions
to be conducted by the FCC. WirelessCo has applied for eligibility to
bid for licenses in 39 of the 51 MTAs for which PCS licenses will be
auctioned by the FCC commencing in December 1994. WirelessCo may also
invest in, affiliate with or acquire licenses from successful bidders
in the PCS Auctions. The Company owns a 30% interest in WirelessCo.
Subsidiaries of Cox, Sprint and the Company have also formed a separate
partnership, in which the Company owns a 35.3% interest, to bid for PCS
licenses for the Philadelphia MTA. The Company cannot predict the cost
of obtaining licenses in the PCS Auctions or the likelihood that
WirelessCo and the Philadelphia partnership will be successful bidders
for any of the PCS licenses for which they have applied to bid. If the
respective bidding strategies of WirelessCo and the Philadelphia
partnership are successful, however, the capital required to fund the
license costs and the construction of the PCS systems will be
substantial and the Company's share thereof would represent a material
increase in its capital requirements.
(continued)
I-52
<PAGE> 46
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The Cable Partners and Sprint have also agreed upon the basis upon
which they would negotiate a definitive agreement for the formation of
NewTelco to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide
basis, using cable television facilities of the Cable Partners and
other cable television operators that agree to affiliate with NewTelco.
The parties intend that the Cable Partners would contribute their
interests in TCG and its affiliated entities and other competitive
access businesses to NewTelco. The Company currently owns an
approximately 29.9% interest in TCG and would own a 30% interest in
NewTelco. The modification or repeal of existing regulatory and
legislative barriers to competition in the local telephony market will
be necessary in order for NewTelco to provide its proposed services in
most states. Formation of NewTelco is subject to certain conditions
including the negotiation of a definitive partnership agreement and
contribution agreement. The contributions of TCG and other competitive
access businesses to NewTelco will be subject, among other things, to
the receipt of necessary regulatory and other consents and approvals.
Subsequent to September 30, 1994, the Company was reorganized
based upon four lines of business: Domestic Cable and Communications;
Programming; International Cable and Programming; and
Technology/Venture Capital. Upon reorganization, certain of the
assets of TCIC were transferred to the other operating units (e.g. TBS,
QVC, Discovery, TeleWest, etc.).
I-53
<PAGE> 47
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material legal proceedings instituted during the quarter
ended September 30, 1994 to which the Company or any of its
consolidated subsidiaries is a party or of which any of their property
is the subject, except as follows:
On September 30, 1994, an action captioned The Carter Revocable
Trust by H. Allen Carter and Sharlynn Carter as Trustee v.
Tele-Communications, Inc.; IR-Daniels Partners III; Daniels
Ventures, Inc.; Cablevision Equities IV; Daniels & Associates,
Inc.; and John V. Saeman, 94-N-2253, was filed in the United
States District Court for the District of Colorado. The suit
alleges that all the defendants violated disclosure
requirements under the Securities Exchange Act of 1934, and
that defendants IR-Daniels Partners III (now known as IR-TCI
Partners III or "IR-Daniels III"), Daniels Ventures, Inc. (now
known as TCI Ventures, Inc.) and Daniels & Associates, Inc.
(now known as TCI Cablevision Associates, Inc. or "D&A")
breached a fiduciary duty to plaintiff and other limited
partners of American Cable TV Investors 3 (the "ACT 3
Partnership"), in connection with (i) the sale to TCI
Communications, Inc. (formerly known as Tele-Communications,
Inc. or "TCIC") of ACT 3 Partnership's ownership interest in
the Redlands System and (ii) the sale to affiliates of TCIC of
ACT 3 Partnership's ownership interests in other cable
television systems (the "ACT 3 Transactions").
Plaintiff brings this action on behalf of himself and purports
to bring it as a class action on behalf of all persons who were
limited partners (the "ACT 3 Limited Partners") of the
Partnership as of the close of business on October 1, 1993 and
who had their proxies solicited by the defendants in connection
with the ACT 3 Transactions that allegedly "resulted in the
dissolution of the ACT 3 Partnership and the loss of their
limited partnership interests."
Plaintiff seeks unspecified damages that allegedly include, but
are not limited to (i) the difference between the value of ACT
3 Partnership's interest in the Redlands System (as a
percentage of the appraised value of that system as determined
by a 1992 appraisal) and the amount paid by TCIC for the ACT 3
Partnership's interest in the Redlands System, plus the amount
of a fee paid to D&A, and (ii) the difference between the fair
market value of the limited partnership interests owned by
members of a putative class and value received by members of
the putative class pursuant to the ACT 3 Transactions.
Plaintiff also seeks interest and consequential damages.
(continued)
II-1
<PAGE> 48
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Section 21 of ACT 3 Partnership's partnership agreement (the
"ACT 3 Partnership Agreement") provides that the General
Partners (IR-Daniels III and John V. Saeman) and their
affiliates, subject to certain conditions set forth in more
detail in ACT 3 Partnership Agreement, are entitled to be
indemnified for any liability or loss incurred by them by reason
of any act performed or omitted to be performed by them in
connection with the business of ACT 3 Partnership, provided that
the General Partners determine, in good faith, that such course
of conduct was in the best interest of ACT 3 Partnership and did
not constitute proven fraud, negligence, breach of fiduciary
duty or misconduct. Accordingly, the defendants may make an
indemnification claim against ACT 3 Partnership in connection
with this litigation. The defendants believe that the claims
asserted are without merit and intend to vigorously defend this
action. The Company believes that the amount of any judgment
will not materially affect the financial condition of the
Company.
On September 30, 1994, an action captioned WEBBCO v.
Tele-Communications, Inc.; IR-Daniels Partners II; Daniels
Ventures, Inc.; Cablevision Equities III; Daniels & Associates,
Inc.; and John V. Saeman, 94-N-2254, was filed in the United
States District Court for the District of Colorado. The suit
alleges that all the defendants violated disclosure requirements
under the Securities Exchange Act of 1934, and that defendants
IR-Daniels Partners II (now known as IR-TCI Partners II or
"IR-Daniels II"), Daniels Ventures, Inc. (now known as TCI
Ventures, Inc.) and D&A breached a fiduciary duty to plaintiff
and other limited partners of American Cable TV Investors 2 (the
"ACT 2 Partnership"), in connection with the sale to TCIC of ACT
2 Partnership's ownership interest in the Redlands System (the
"ACT 2 Transaction").
Plaintiff brings this action on behalf of himself and purports
to bring it as a class action on behalf of all persons who were
limited partners (the "ACT 2 Limited Partners") of the ACT 2
Partnership as of the close of business on October 1, 1993 and
who had their proxies solicited by the defendants in connection
with the ACT 2 Transaction that allegedly "resulted in the
dissolution of the ACT 2 Partnership and the loss of their
limited partnership interests."
(continued)
II-2
<PAGE> 49
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Plaintiff seeks unspecified damages that allegedly include, but
are not limited to (i) the difference between the value of ACT 2
Partnership's interest in the Redlands System (as a percentage
of the appraised value of that system as determined by a 1992
appraisal) and the amount paid by TCIC for ACT 2 Partnership's
interest in the Redlands System, plus the amount of a fee paid
to D&A, and (ii) the difference between the fair market value of
the limited partnership interests owned by members of a putative
class and value received by members of the putative class
pursuant to the ACT 2 Transaction. Plaintiff also seeks interest
and consequential damages.
Section 21 of ACT 2 Partnership's partnership agreement (the
"ACT 2 Partnership Agreement") provides that the General
Partners (IR-Daniels II and John V. Saeman) and their
affiliates, subject to certain conditions set forth in more
detail in ACT 2 Partnership Agreement, are entitled to be
indemnified for any liability or loss incurred by them by reason
of any act performed or omitted to be performed by them in
connection with the business of the Partnership, provided that
the General Partners determine, in good faith, that such course
of conduct was in the best interest of the Partnership and did
not constitute proven fraud, negligence, breach of fiduciary
duty or misconduct. Accordingly, the defendants may make an
indemnification claim against ACT 2 Partnership in connection
with this litigation. The defendants believe that the claims
asserted are without merit and intend to vigorously defend this
action. The Company believes that the amount of any judgment
will not materially effect the financial condition of the
Company.
Intellectual Property Development Corporation v. UA-Columbia
Cablevision of Westchester, Inc. and Tele-Communications, Inc.
On September 1, 1994, plaintiff filed suit in federal court in
New York for the alleged infringement of a patent for an
invention used in broadcasting systems with fibre optic
transmission lines. Plaintiff seeks injunctive relief and
unspecified treble damages. Based upon the facts available,
management believes that, although no assurance can be given as
to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition
of the Company.
QVC Shareholders Litigation. In July 1994, eight putative class
action lawsuits were filed by certain shareholders of the
company in the Delaware Court of Chancery on behalf of
unspecified classes of holders of QVC common stock. On
August 3, 1994, these actions were consolidated under the
caption In re QVC Shareholders Litigation, Consolidated Civil
Action No. 13590 (Court of Chancery, New Castle County, State
of Delaware) (the "Consolidated Action"). The defendants named
in the designated complaint in the Consolidated Action included
the company and its directors (Barry Diller, Bruce R. Ramer,
Linda J Wachner, William F. Costello, J. Bruce Llewellyn,
Brian L. Roberts, Ralph J. Roberts and Joseph M. Segal). In
their designated complaint in the Consolidated Action,
plaintiffs alleged, among other things, that the QVC directors
breached their fiduciary duties by failing to take all possible
steps to seek out and encourage the best offer for the company
following the announcement by Comcast of a merger proposal to
acquire the company. Plaintiffs sought, among other things, an
injunction ordering the defendants to auction the company and
an award of unspecified damages to the members of the plaintiff
class. On July 22, 1994, Comcast and Liberty made a merger
proposal to the company in order to acquire the remaining
shares of QVC common stock that Comcast and Liberty
collectively did not already own.
During early August 1994, counsel for the plaintiffs in the
Consolidated Action advised counsel for Liberty that they were
preparing to amend the designated complaint to name Comcast
and Liberty as defendants. On August 3-4, 1994, plaintiffs'
counsel negotiated with counsel for Liberty with respect to a
proposed increase in the consideration to be paid to the
company's public shareholders as well as the accelerated
payment of such consideration, with respect to the possible
settlement of the Consolidated Action. The negotiations
culminated on August 5, 1994 with the execution of a memorandum
of understanding by plaintiffs, defendants, Comcast and Liberty
which contemplates the settlement and dismissal with prejudice
of the Consolidated Action. On August 4, 1994, Comcast,
Liberty, QVC Programming Holdings, Inc. and the company
executed a merger agreement which, among other things,
reflected the parties' agreement to the terms and transactions
contemplated by the memorandum of understanding and, on August
19, 1994, as also contemplated by the memorandum of
understanding, plaintiffs filed a consolidated amended class
action complaint with the Delaware Court of Chancery against
QVC, the company's directors, Comcast and Liberty.
The proposed settlement of the Consolidated Action is subject
to the usual conditions set out in the memorandum of
understanding and if approved by the Delaware Court of
Chancery, would result in a dismissal with prejudice of
Consolidated Action, and a complete release of all claims,
known or unknown, arising out of or related to the acts,
transactions or occurrences that are alleged in the
Consolidated Action. Defendants in the Consolidated Action have
entered into the memorandum of understanding and are proposing
to enter into the stipulation of settlement for the
Consolidated Action solely because the proposed settlement
would eliminate the distraction, burden and expense of the
litigation.
(continued)
II-3
<PAGE> 50
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
The following legal proceedings were previously reported by Liberty in
their June 30, 1994 Form 10-Q:
In re Liberty Media Corporation Shareholders Litigation, Cons.
C.A. No. 13168 (Del. Ch.): In October 1993, after the
announcement that Liberty would recombine with TCI through the
mergers of TCIC and Liberty with subsidiaries of a newly
formed company, seven putative class action lawsuits were
filed by Liberty stockholders in the Court of Chancery of the
State of Delaware (the "Delaware Chancery Court") on behalf of
unspecified classes of the holders of Liberty common stock
(other than defendants). The original defendants included
certain directors of Liberty (Bob Magness, John C. Malone,
Peter R. Barton, H.F. Lenfest, Robert L. Johnson and Paul A.
Gould), Liberty and TCI. These actions were consolidated by
the Delaware Chancery Court on October 27, 1993 under the
caption In re Liberty Media Corporation Shareholder
Litigation, Cons. C.A. No. 13168 (the "Liberty Stockholder
Action"). On November 9, 1994, plaintiffs filed a motion for
leave from the Delaware Chancery Court to file a second
consolidated amended complaint against the defendants named
in the pending complaint and Liberty directors David Wargo and
David Rapley. The proposed complaint is on behalf of a
putative class consisting of all holders of Liberty common
stock (except the defendants and their affiliates) from and
after October 7, 1993. Plaintiffs allege that the Liberty
stockholders received inadequate consideration in the Mergers,
that the defendants impeded the ability of third parties to
seek to acquire Liberty, and that the defendants failed to
conduct an auction or market check following the announcement
of the proposed Mergers. Plaintiffs seek to rescind the
Mergers, to require defendants to take all appropriate steps
to enhance Liberty's value as an acquisition candidate, to
account to the plaintiff class for all profits obtained by
defendants, and to require defendants to pay unspecified
damages to the plaintiff class. The case remains pending
before the Delaware Chancery Court. Discovery has commenced
in the action. Management of the Company believes that
plaintiffs' complaint is without merit, intends to contest
vigorously the plaintiffs' allegations, and believes that any
judgment will not materially affect the financial condition
of the Company.
(continued)
II-4
<PAGE> 51
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
In re Home Shopping Network, Inc. Shareholders Litigation,
Cons. C.A. No. 12868 (Del. Ch.): Following the announcement in
February 1993 by Liberty of a merger proposal to acquire Home
Shopping Network, Inc. ("HSN"), eight complaints were filed
with the Delaware Chancery Court on behalf of unspecified
classes of HSN stockholders (other than defendants). Pursuant
to orders approved by the Delaware Chancery Court on February
19, 1993 and March 15, 1993, the eight actions were
consolidated for all purposes under the caption In re Home
Shopping Network, Inc. Shareholders Litigation, Cons. C.A.
No. 12868 (the "HSN Stockholder Action"). The defendants in
the action have included Liberty, Liberty Program Investments,
Inc. ("LPI"), John C. Malone, Peter R. Barton, Robert R.
Bennett and John M. Draper (collectively the "Liberty
Defendants"), Roy M. Speer, RMS Limited Partnership ("RMS"),
Gerald F. Hogan, Les R. Wandler, J. Anthony Forstmann, John J.
McNamara, QVC, Inc. ("QVC") and HSN. Plaintiffs originally
alleged that the February 1993 merger proposal by Liberty to
acquire HSN was fundamentally unfair to the public
stockholders of HSN, that the consideration in the Liberty
merger proposal did not represent the fair value of HSN stock,
and that the HSN directors breached their fiduciary duties in
responding to the Liberty merger proposal. In addition,
plaintiffs alleged that Roy M. Speer and RMS breached their
fiduciary duties to the HSN stockholders in approving and
consummating the sale to Liberty in February 1993 of a
majority of the HSN voting stock, and that Liberty aided and
abetted their supposed breach of fiduciary duty. Plaintiffs
sought an injunction against the consummation of the Liberty
merger proposal, unspecified money damages, and to rescind the
sale of HSN stock by RMS to Liberty. Following Liberty's
withdrawal on April 9, 1993 of its merger proposal to HSN and
Liberty's announcement on April 23, 1993 of a partial tender
offer to purchase additional shares of HSN stock (the "Liberty
Tender Offer"), the complaint in the HSN Stockholder Action
was amended on April 26, 1993. The amended and supplemental
complaint included the additional allegations that, among
other things, the Liberty Tender Offer was coercive and
contained an unfair price, that the HSN directors breached
their fiduciary duties in responding to the Liberty Tender
Offer, and that Liberty's disclosures in its tender offer
circular were false and misleading. Plaintiffs sought, among
other relief, an injunction preventing consummation of the
Liberty Tender Offer, an order enjoining the defendants from
taking any action to eliminate the supposedly separate class
voting rights of the holders of HSN common stock on any
business combination involving the company, and unspecified
money damages.
(continued)
II-5
<PAGE> 52
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Following expedited discovery and a hearing, the Delaware
Chancery Court issued an opinion on May 19, 1993 denying
plaintiffs' motion to enjoin the Liberty Tender Offer. The
Liberty Tender Offer closed on May 20, 1993. On June 6, 1993,
plaintiffs in the HSN Stockholder Action filed a second
amended and supplemental complaint, which among other things
set forth additional allegations against Liberty regarding its
supposed failure to disclose material information in
connection with the Liberty Tender Offer. Plaintiffs further
alleged that HSN issued a misleading Schedule 14D-9 in
response to the Liberty Tender Offer. On July 12, 1993, after
QVC made a merger proposal to HSN, plaintiffs in the HSN
Stockholder Action filed a third consolidated amended and
supplemental class action complaint which added QVC as an
additional defendant and which contained additional
allegations that the financial terms of the proposed merger
between HSN and QVC were unfair to the HSN stockholders. QVC
withdrew its merger proposal to HSN on November 5, 1993. The
HSN Stockholder Action remains pending before the Delaware
Chancery Court. On August 19, 1994, plaintiffs and all
defendants entered into a stipulation in connection with a
contemplated settlement of the HSN Stockholder Action and the
Delaware Federal Action (as defined below) which is described
more fully below. See "Proposed Settlement of Certain Delaware
Actions."
(continued)
II-6
<PAGE> 53
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
7547 Corp. v. Liberty Media Corporation: Following Liberty's
announcement of a partial tender offer to purchase additional
shares of HSN stock, on April 26, 1993, four HSN stockholders
commenced an action in the Delaware Chancery Court on behalf
of an unspecified class of HSN stockholders (other than
defendants) (the "Section 203 Action"). The defendants include
Liberty, LPI, HSN, Roy M. Speer, Les R. Wandler, Franklin J.
Chu, J. Anthony Forstmann, Thomas A. James, John J. McNamara,
William J. Ramsey and Michael V. Roberts. Plaintiffs allege
that, upon the agreement in principle in December 1992 by
Liberty to purchase from an affiliate of Roy M. Speer a
majority of the HSN voting stock (the "Agreement in
Principle"), Liberty became a non- exempt "interested
stockholder" of HSN within the meaning of Section 203 of the
Delaware General Corporation Law ("Section 203"). Plaintiffs
contend that, as a supposedly non-exempt "interested
stockholder" of HSN, Liberty engaged in a prohibited "business
combination" within the meaning of Section 203 by purchasing
additional shares of HSN stock through the Liberty Tender
Offer. Plaintiffs also assert that Liberty's offer to purchase
in the Liberty Tender Offer contained certain
misrepresentations and omissions. Plaintiffs seek declaratory
and injunctive relief, unspecified money damages and an
injunction prohibiting Liberty from engaging in any "business
combination" as defined in Section 203 until December 1995.
Following expedited discovery and a hearing, the Delaware
Chancery Court issued an opinion on May 19, 1993 denying
plaintiffs' motion to enjoin the closing of the Liberty Tender
Offer. The Liberty Tender Offer closed on May 20, 1993. On May
11, 1994, the Liberty defendants in the Section 203 Action
filed their answer to plaintiffs' complaint which denied
plaintiffs' allegations of wrongdoing and raised certain
affirmative defenses.
On June 24, 1994 plaintiffs in the Section 203 Action filed an
amended complaint which, in addition to the person and entities
named as defendants in the original complaint, named Barton,
Bennett, Draper, Hogan, Malone, Leo J. Hindery and George C.
McNamee as defendants. The persons named as additional
defendants in the amended complaint are past or present
directors of HSN who, in addition to certain of the original
defendants, allegedly committed or aided and abetted the
alleged wrongdoing. According to the amended complaint, the
plaintiff class in the Section 203 Action consists of (i) all
persons who sold shares of HSN stock to Liberty in the Liberty
Tender Offer (the "Tender Subclass"), (ii) all sellers of HSN
shares subsequent to December 4, 1992; and (iii) all holders
of HSN shares at any time since December 4, 1992 (including all
current holders of HSN shares).
(continued)
II-7
<PAGE> 54
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
The gravamen of the amended complaint in the Section 203
Action is that, prior to the time when Liberty reached an
understanding with RMS on December 4, 1992, to allow Liberty
to purchase a controlling equity interest in HSN, the HSN
Board and the HSN Executive Committee allegedly failed to
approve the proposed transaction and, thereby, failed under
Section 203(a)(1) to exempt Liberty from the restrictions
under Section 203 on any "business combination" with HSN.
Plaintiffs assert that upon realizing that the HSN Board
failed on December 4, 1992, to exempt Liberty from the
restrictions of Section 203, HSN created a record of (i) a
supposed meeting of the HSN Executive Committee on December 4,
1992, which never occurred; and (ii) purported action by the
HSN Executive Committee at the allegedly fictional meeting on
December 4, 1992, to exempt Liberty from the restrictions of
Section 203. The amended complaint in the Section 203 Action
also alleged that, by asserting that Liberty was exempt from
Section 203, Liberty and the other defendants allegedly
misrepresented a material fact to all sellers of HSN shares
after the public announcement of the Agreement in Principle on
December 7, 1992 (including the members of the Tender
Subclass), as well as to the present holders of HSN shares.
Plaintiffs also allege that the Liberty Tender Offer
constituted a prohibited "business combination" under Section
203.
Plaintiffs in the Section 203 Action further assert that the
members of the HSN Executive Committee (Speer, Wandler and
Ramsey) had disabling conflicts of interest which prevented
the HSN Executive Committee from taking effective action to
exempt Liberty from the restrictions of Section 203. HSN and
the individual defendants allegedly aided and abetted Liberty
in its asserted scheme to misrepresent its status under
Section 203. The individual defendants also allegedly breached
their fiduciary duties by failing to correct Liberty's
asserted misrepresentation of its exemption from Section 203.
Plaintiffs in the Section 203 Action seek a declaratory
judgment that Liberty is subject to Section 203, an award of
damages to the plaintiff class members who sold their HSN
shares, and unspecified rescissionary and injunctive relief.
The Section 203 Action remains pending before the Delaware
Chancery Court. Discovery has commenced in the Section 203
Action.
(continued)
II-8
<PAGE> 55
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Gerda Bartnik, et al. v. Home Shopping Network, Inc. et al.,
C.A. Nos. 93-336\347\406\480 (D. Del.) (the "Delaware Federal
Action"): Following the announcement on July 12, 1993 of a
proposed merger between QVC and HSN, three complaints were
filed in the United States District Court for the District of
Delaware (the "Delaware Federal Court"). The three complaints
were consolidated by order of the Delaware Federal Court on
September 14, 1993. On December 16, 1993, three actions that
had been filed in, consolidated by and transferred from the
United States District Court for the District of Colorado were
consolidated with the Delaware Federal Action. On February 15,
1994, plaintiffs filed a consolidated and amended complaint.
The action seeks unspecified damages on behalf of a putative
class consisting of all purchasers of HSN common stock prior
to March 30, 1993 who thereafter sold such shares on public
exchanges prior to July 12, 1993 or in the Liberty Tender
Offer. The defendants include Liberty, LPI, John C. Malone,
Peter R. Barton and Robert R. Bennett, QVC, HSN, Gerald F.
Hogan, J. Anthony Forstmann, John N. McNamara, Roy M. Speer
and Les R. Wandler. Plaintiffs allege that, between March 30,
1993 and July 12, 1993, the Liberty Defendants failed to
disclose their supposed "plans and expectations" for a merger
of HSN and QVC. Plaintiffs also allege that (i) defendants
supposedly made misleading and overly negative disclosures
between April-July 1993 regarding the business activities and
prospects of HSN which had the effect of artificially
depressing the price of HSN shares; (ii) defendants allegedly
misled sellers of HSN shares by failing to disclose
defendants' expectations regarding a July 1993 ruling by the
Federal Communications Commission which improved the business
prospects of HSN; and (iii) Liberty and HSN supposedly misled
the HSN stockholders by making incorrect disclosures
(particularly in connection with the Liberty Tender Offer)
regarding Liberty's ability to control the HSN stockholder
vote on certain fundamental corporate transactions. Plaintiffs
assert that the foregoing alleged acts and omissions violated
the federal securities laws and state law. The Delaware
Federal Action remains pending before the Delaware Federal
Court. Discovery has commenced on the Delaware Federal Action.
On August 19, 1994, plaintiffs and all defendants entered into
a stipulation in connection with a contemplated settlement of
the Delaware Federal Action (and the HSN Stockholders Action)
which is described more fully below. See "Proposed Settlement
of Certain Delaware Actions."
(continued)
II-9
<PAGE> 56
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Consolidated Home Shopping Network, Inc. Shareholders
Derivative Action: In December 1992, two stockholder
derivative actions were filed on behalf of HSN in the United
States District Court for the Middle District of Florida,
Tampa Division (the "Florida Federal Court"). The original
defendants included Roy M. Speer, Les R. Wandler, Franklin J.
Chu, J. Anthony Forstmann, Thomas A. James, John J. McNamara,
Michael J. Ramsey, Michael V. Roberts and HSN. On February 23,
1993, the Florida Federal Court granted a motion to
consolidate these lawsuits into a single action styled as 7457
Corp. v. Speer, No. 92-1966-Civ-T-15A and No.
92-2045-Civ-T-99C (the "Florida Derivative Action"). On April
16, 1993, plaintiffs in the Florida Derivative Action filed a
consolidated amended complaint which added RMS, Richard Speer
and Western Hemisphere Sales, Inc. ("Western") as defendants.
HSN is named as a nominal defendant with respect to the two
derivative claims in the amended complaint. Plaintiffs also
assert a claim that the individual defendants (other than Roy
M. Speer) are liable to an unspecified class of HSN
stockholders because HSN's proxy materials during 1991-1993
supposedly were false and misleading. The derivative claims in
the suit allege that the HSN director defendants breached
their duties to HSN and its stockholders by failing to
exercise due care and diligence in the management of HSN.
Western and Richard Speer are alleged to have aided and
abetted such breaches. Plaintiffs also assert that Roy M.
Speer violated various legal duties by causing HSN to enter
into certain commercially unreasonable licensing, liquidations
and other arrangements with Western (collectively, the "R.
Speer/Western Arrangements"), by paying a former HSN executive
unwarranted fees in exchange for the former executive's
silence concerning derivative allegations involving HSN and
then shifting such fee obligations to HSN, and by causing HSN
to purchase a business of Western at a commercially
unreasonable price. On May 24, 1993, plaintiffs in the Florida
Derivative Action filed a second amended consolidated
complaint naming Liberty and LPI as additional defendants. As
to Liberty and LPI, the second amended complaint seeks
unspecified damages on behalf of an unspecified class of HSN
stockholders based on allegations that, among other things,
Liberty's offer to purchase HSN common stock in May 1993
failed to disclose material information and otherwise violated
the "going private" rules under the federal securities laws
(the "Liberty Class Claims"). The Florida Derivative Action
remains pending before the Florida Federal Court. On February
8, 1994, the parties to the Florida Derivative Action (other
than Liberty and LPI) signed a memorandum of understanding
(the "Florida Derivative MOU") in connection with a
contemplated settlement of the derivative claims and class
claims against HSN (the "Florida Derivative Settlement"). In
the Florida Derivative MOU, the parties agreed, in principle
and subject to the
(continued)
II-10
<PAGE> 57
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
approval of the Florida Derivative Settlement by the Florida
Federal Court as follows: (i) Roy M. Speer will pay $2 million
to HSN, as well as pay an additional $1 million to HSN in
order to partially fund the proposed settlement of the Florida
Federal Actions (see "Florida Federal Securities Actions
Against HSN"); and (ii) HSN will pay $4.5 million to Western
in exchange for releases from the R. Speer/Western
Arrangements; (iii) the parties agreed to certain limitations
on the rights of Roy M. Speer to seek indemnification for the
advancement of expenses from HSN; (iv) HSN agreed to release
any claim against Roy M. Speer, RMS, Richard Speer and Western
arising out of any action by any federal or state taxing
authority relating to the treatment of payments to Western
pursuant to the R. Speer/ Western Arrangements; (v) the
parties agreed to additional releases of potential claims
against each other; and (vi) the parties agreed to several
supplemental agreements. In conjunction with the Florida
Derivative Settlement, HSN also has agreed to pay such
attorneys' fees as may be awarded by the Florida Federal Court
to plaintiffs' counsel. The Florida Derivative Settlement, as
contemplated by the Florida Derivative MOU and, if approved by
the Florida Federal Court, would result in the dismissal with
prejudice of all claims in the Florida Derivative Action
(other than the Liberty Class Claims), and a complete release
of all claims that have been or could have been or in the
future might be asserted by HSN against any of the defendants
based on the allegations, transactions, matters or
occurrences, representations or omissions set forth, referred
or related in any way to the complaints in the Florida
Derivative Action. The contemplated settlement is conditioned
upon, among other things, the approval of the Florida Federal
Court following notice of the Florida Derivative Settlement to
the stockholders of HSN and a hearing before the Florida
Federal Court on the fairness of the Florida Derivative
Settlement. On April 22, 1994, the Florida Federal Court
entered an order dismissing without prejudice the Liberty
Class Claims. Liberty believes that the Liberty Class Claims
would be barred as to the contemplated plaintiff class in the
Florida Derivative Action, under principles of collateral
estoppel and release, in the event the Delaware Federal Court
and the Delaware Chancery Court approved the proposed
settlement of the HSN Stockholder Action and the Delaware
Federal Action, as contemplated by the parties to such
proceedings in a memorandum of understanding dated May 11,
1994. See "Proposed Settlement of Certain Delaware Actions."
(continued)
II-11
<PAGE> 58
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Florida Federal Securities Actions Against HSN: During April
1993, nine purported class action lawsuits (collectively, the
"Florida Federal Actions") were filed against HSN, Roy M.
Speer and, in certain cases, RMS and several former officers
and/or directors of HSN, including Les R. Wandler, Fernando
DiFilippo, Jr., Lowell R. Paxson, Franklin J. Chu, John J.
McNamara, Michael V. Roberts and Edward Vaughn. The complaints
allege, in general, that certain public filings, announcements
and statements by Roy M. Speer and HSN between November 1992
and April 1993 omitted to disclose material facts relating to
HSN's business practices, including (among other things) that
HSN employees allegedly accepted improper compensation from
vendors, that HSN and/or Roy M. Speer and Lowell Paxson
allegedly paid the company's former general counsel (Fernando
DiFilippo, Jr.) to prevent the disclosure of such vendor
bribes, that HSN allegedly engaged in undisclosed related
party transactions, that unspecified vendors made improper
payments to HSN employees (including Roy M. Speer and Lowell
Paxson), that HSN assets and funds allegedly were transferred
improperly to Western, that HSN's inventory practices were
deceptive and that HSN allegedly made an improper loan to one
of the company's financial advisors. The suits allege that the
defendants' actions or omissions violated the federal
securities laws and state law. The actions seek to recover
damages, punitive damages, interest, costs and fees on behalf
of various putative classes of purchasers of HSN common stock.
The Florida Federal Actions were assigned the following civil
action numbers by the Florida Federal Court: 93-602-CIV-T-23B,
93-608-CIV-T-15C, 93-610-CIV-T-21B, 93- 613-CIV-T-17B,
93-621-CIV-T-15A, 93-623-CIV-T-23A, 93-624-CIV-T-17B,
93-681-CIV-T-17A and 93-679-CIV-T-21C. Plaintiff in C.A. No.
93-621-CIV-T-15A voluntarily dismissed his claims without
prejudice on April 22, 1993. The Florida Federal Actions
(other than C.A. No. 93- 679-CIV-T-21C) were consolidated on
June 6, 1994 by the Florida Federal Court and the parties were
directed to file their papers in the action styled as
Goldstein v. Speer, No. 93-602-CIV-T-23B. The Florida Federal
Actions remain pending before the Florida Federal Court.
(continued)
II-12
<PAGE> 59
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
On October 10, 1994, the parties to the Florida Federal
Actions entered into a stipulation in connection with a
contemplated settlement of such actions (the "Florida Federal
Settlement"). In the stipulation, the parties agreed, in
principle and subject to the approval of the Florida Federal
Settlement by the Florida Federal Court, that HSN will pay
$9.6 million to create a fund in full settlement of any and
all claims whatsoever which have been or could have been made
in the Florida Federal Actions by any members of a plaintiff
class consisting of all purchasers of HSN common stock (other
than defendants and other related parties) from June 1, 1992
through and including April 12, 1993 (collectively, the
"Purchaser Class"). The parties further agreed that the
Florida Federal Settlement shall not affect the right of HSN
to assert any claims against Roy M. Speer or any affiliated
entity. The Florida Federal Settlement contemplates that the
net proceeds of the settlement fund will be distributed to the
members of the Purchaser Class in accordance with a plan of
distribution to be approved by the Florida Federal Court. The
distribution of the net proceeds of the settlement fund to the
Purchaser Class will occur after the fees and expenses of
plaintiffs' counsel in the Florida Federal Actions (and any
administrative and notice expenses relating to the Florida
Federal Settlement) are deducted from the fund. The
consummation of the proposed Florida Federal Settlement is
subject to a number of conditions, including notice of the
proposed settlement to the Purchaser Class, final approval by
the Florida Federal Court of the Florida Federal Settlement
(and the exhaustion of possible appeals, if any) and the
dismissal of the Florida Federal Actions by the Florida
Federal Court with prejudice and without awarding costs to any
party, except for certain fees and expenses that plaintiffs'
counsel intend to seek in accordance with the stipulation of
settlement. The Florida Federal Settlement, if approved by the
Florida Federal Court, would result in the dismissal with
prejudice of the Florida Federal Actions, and a complete
release of all claims, known or unknown, arising out of or
related to the acts, transactions, or occurrences that are
alleged in the Florida Federal Actions or which relate to the
purchase of HSN common stock from June 1, 1992 through and
including April 12, 1993. HSN has denied, and continues to
deny, that it has committed or has threatened to commit any
violations of laws or breaches of duty to the plaintiffs or
any member of the Purchaser Class. HSN has entered into the
stipulation of settlement for the Florida Federal Actions
solely because the Florida Federal Settlement would eliminate
the distraction, burden and expense of further litigation.
(continued)
II-13
<PAGE> 60
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Proposed Settlement of Certain Delaware Actions. On August 19,
1994, plaintiffs and all defendants in the HSN Stockholder
Action and the Delaware Federal Action entered into a
stipulation in connection with a contemplated settlement of
such actions (the "Delaware Settlement"). The parties to the
Delaware MOU agreed in principle and subject to the approval
of the Delaware Settlement by the Delaware Chancery Court and
the Delaware Federal Court (collectively, the "Delaware
Courts"), that Liberty would create a $13 million settlement
fund in full settlement of any and all claims whatsoever which
have been or could have been made in the HSN Stockholder
Action and the Delaware Federal Action by any members of a
plaintiff class (other than defendants) consisting of (i) all
record and beneficial owners of HSN common stock (the "HSN
Shares") from December 4, 1992 through and including November
5, 1993, (ii) all sellers of HSN Shares in the Liberty Tender
Offer; and (iii) all sellers of HSN Shares from March 30, 1993
through and including July 12, 1993 (collectively, the
"Holder/Seller Class"). The Delaware Settlement contemplates
that the net proceeds of the settlement fund will be
distributed to the members of the subsclasses in subsections
(ii) and (iii) of the preceding sentence (the "Seller Class
Members") in accordance with a method of loss calculation and
a plan of allocation and distribution to be approved by the
Delaware Courts. The distribution of the net proceeds of the
settlement fund to the Seller Class Members will occur after
the fees and expenses of plaintiffs' counsel in the two
lawsuits (and any administrative and notice expenses relating
to the Delaware Settlement which exceed $200,000) are deducted
from the fund. The consummation of the proposed Delaware
Settlement is subject to a number of conditions, including
notice of the proposed settlement to the Holder/Seller Class,
final approval by the Delaware Courts of the Delaware
Settlement (and the exhaustion of possible appeals, if any),
and the dismissal of the HSN Stockholder Action and the
Delaware Federal Action by the Delaware Courts with prejudice
and without awarding costs to any party, except for certain
fees and expenses that plaintiffs' counsel intend to seek in
accordance with the stipulation of settlement. The Delaware
Settlement, if approved by the Delaware Courts, would result
in the dismissal with prejudice of the HSN Stockholder Action
and the Delaware Federal Action, and (subject to certain
exceptions) a complete release of all claims that
(continued)
II-14
<PAGE> 61
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
have been, or could have been, or in the future might be
asserted by any member of the Holder/Seller Class against any
of the Settling Delaware Defendants in such actions based on
the allegations, transactions, matters or occurrences,
representations or omissions set forth, referred or related in
any way to the complaints in the HSN Stockholder Action and
the Delaware Federal Action. The Liberty Defendants have
denied, and continue to deny, that they have committed or have
threatened to commit any violations of law or breaches of duty
to the plaintiffs or any member of the Holder/Seller Class.
The Liberty Defendants have entered into the stipulation of
settlement for the Delaware Actions solely because the
proposed Delaware Settlement would eliminate the distraction,
burden and expense of further litigation.
In conjunction with the proposed settlement of the Delaware
Federal Action, the HSN Stockholder Action and the Florida
Derivative Action, the Florida Federal Actions, certain
defendants in those lawsuits agreed through their attorneys of
February 8, 1994 that, upon the final consummation of the
proposed settlements in all such actions pursuant to the
Delaware MOU, the Florida Derivative MOU and the Florida
Federal MOU, all such parties will release each other as to
any claims for contribution relating to the claims actually
asserted in those proceedings (the "Release Agreement"). The
parties to the Release Agreement are HSN, Roy M. Speer, Les R.
Wandler, Franklin J. Chu, J. Anthony Forstmann, Gerald F.
Hogan, Thomas A. James, John J. McNamara, William J. Ramsey,
Michael V. Roberts, RMS, Liberty, LPI, John C. Malone, Peter
R. Barton, Robert R. Bennett, and John M. Draper.
The foregoing descriptions of these actions, the Florida
Derivative MOU, the proposed settlements of the HSN
Stockholder Action, the Delaware Federal Action, the Florida
Derivative Action and the Florida Federal Actions do not
purport to be a complete summary thereof and are qualified in
their entirety by reference to the complaints and other
pleadings in these actions and the documents associated with
the proposed settlements.
(continued)
II-15
<PAGE> 62
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
The following legal proceeding was instituted subsequent to September
30, 1994 -
Cooper, et al. v. UCTC of Baltimore, Inc., et al. On October
24, 1994, plaintiffs, three current employees of United Cable
Television of Baltimore Limited Partnership and two spouses of
such current employees, filed suit in the Circuit Court for
Baltimore City against UCTC of Baltimore, Inc., United Cable
Television of Baltimore Limited Partnership, TCI East, Inc.
and Tele-Communications, Inc. The suit alleges, inter alia,
eight various tort claims, including assault, false
imprisonment, intentional infliction of emotional distress,
invasion of privacy by intrusion, invasion of privacy by false
light, defamation by slander, defamation by libel and loss of
consortium in connection with an incident that occurred
October 26, 1993, at the Baltimore system. Each plaintiff
seeks $1,000,000 compensatory damages and $5,000,000 punitive
damages per count. The loss of consortium claim is limited to
four of the five plaintiffs. The Company intends to contest
the case. Based upon the facts available, management believes
that, although no assurance can be given, the ultimate
disposition should not have a material adverse effect upon the
financial condition of the Company.
The following legal proceeding was instituted and previously reported
during the nine months ended September 30, 1994, with material
developments instituted subsequent to September 30, 1994 -
Miles Whittenburg, Jr., et al., v. Tele-Communications, Inc.,
et al. On April 9, 1994, plaintiffs, six current employees of
United Cable Television of Baltimore Limited Partnership and
four spouses, filed suit in the Circuit Court for Baltimore
City against Tele-Communications, Inc., TCI East, Inc., UCTC
of Baltimore, Inc., and United Cable Television of Baltimore
Limited Partnership. The suit alleges, inter alia, nine
various tort claims, including but not limited to, false
imprisonment, assault, battery, intentional infliction of
emotional distress, invasion of privacy, and loss of
consortium in connection with an incident that occurred
October 26, 1993, at the Baltimore system. Each of the nine
counts in the complaint seek compensatory damages of
$1,000,000 per plaintiff, and punitive damages of $5,000,000
per plaintiff. Plaintiffs also filed, on October 24, 1994, in
United States District Court for the District of Maryland,
Case No. MAR 94-2937, claims for race discrimination and loss
of consortium. Both counts seek compensatory damages of
$1,000,000 per plaintiff and punitive damages of $5,000,000
per plaintiff. The loss of consortium claims apply to eight of
the plaintiffs. The Company intends to contest the case. Based
upon the facts available, management believes that, although
no assurance can be given as to the outcome of this action,
the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
(continued)
II-16
<PAGE> 63
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Elmer Lewis v. Tele-Communications, Inc., et al. On June 23,
1994, plaintiff filed suit in the Federal Court for the
District of Maryland against Tele-Communications, Inc., TCI
East, Inc., UCTC of Baltimore, Inc. and United Cable
Television of Baltimore Limited Partnership. On August 2,
1994, the suit was consolidated for all purposes with Tyrone
Belgrave, et al. v. Tele-Communications, Inc. et al. The suit
alleges, inter alia, false imprisonment, assault, employment
defamation, intentional infliction of emotional distress,
invasion of privacy, wrongful discharge and discrimination on
the basis of race. The complaint also seeks divestiture of
the Baltimore City cable franchise from the Company. Each of
the ten counts in the complaint seek compensatory damages of
$1,000,000 and punitive damages of $5,000,000. In a decision,
dated October 3, 1994, the Court granted defendants' motion to
dismiss the intentional infliction of emotional distress,
invasion of privacy, wrongful discharge and violation of
cable franchise agreement claims. The Company intends to
contest the case. Based upon the facts available, management
believes that, although no assurance can be given as to the
outcome of this action, the ultimate disposition should not
have a material adverse effect upon the financial condition of
the Company.
There were no material developments during the quarter ended September
30, 1994 in any of the existing legal proceedings which were
previously reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, except as follows:
Ranlee Communications, Inc. v. United Artists
Telecommunications, Inc. and United Artists Communications,
Inc. This matter was filed in the United States District Court
for the Eastern Division of New York in September of 1989.
Plaintiff alleges that defendant United Artists
Telecommunications, Inc., by and through its parent United
Artists Communications, Inc., the predecessor company of UAE
(now a wholly-owned subsidiary of TCI), entered into an
agreement with plaintiff wherein plaintiff was engaged as a
manager to order, install and supervise telephone switching
systems throughout the Greater New York Metropolitan area, and
that the defendants did wrongfully and in bad faith terminate
the contract. Plaintiff and defendant have reached and
executed a settlement; the case has been dismissed. This
represents the final resolution of this matter, and,
accordingly, this case will not be reported in future filings.
(continued)
II-17
<PAGE> 64
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Tyrone Belgrave, et al., vs. Tele-Communications, Inc., et al.
On February 8, 1994, Tyrone Belgrave and 26 other current or
former employees of United Cable Television of Baltimore
Limited Partnership filed suit in the Circuit Court for
Baltimore City against Tele-Communications, Inc., TCI East,
Inc., UCTC of Baltimore, Inc., and United Cable Television of
Baltimore Limited Partnership. The action alleges, inter alia,
false imprisonment, assault, employment defamation,
intentional infliction of emotional distress, invasion of
privacy, wrongful discharge, and discrimination on the basis
of race. The complaint also seeks divestiture of the Baltimore
City cable franchise from the Company. Six counts in the
complaint each seek compensatory damages of $1,000,000 per
plaintiff, and punitive damages of $5,000,000 per plaintiff.
Three other counts in the complaint each seek compensatory
damages for $1,000,000 per plaintiff and punitive damages of
$5,000,000 per plaintiff. In a decision, dated October 3,
1994, the Court granted defendants motion to dismiss
the intentional infliction of emotional distress, invasion
of privacy, wrongful discharge and violation of cable
franchise agreement claims. The Company intends to contest
the case. Based upon the facts available, management believes
that, although no assurance can be given as to the outcome
of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the
Company.
(continued)
II-18
<PAGE> 65
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(formerly Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued):
Viacom International, Inc. v. Tele-Communications, Inc.,
Liberty Media Corporation, Satellite Services, Inc., Encore
Media Corporation, NetLink USA, Comcast Corporation, and QVC
Network, Inc. This suit was filed on September 23, 1993 in the
United States District Court for the Southern District of New
York, and the complaint was amended on November 9, 1993. The
amended complaint alleges that the Company violated the
antitrust laws of the United States and the State of New York,
violated the 1992 Cable Act, breached an affiliation
agreement, and tortiously interfered with the Viacom Inc. -
Paramount Communications, Inc. ("Paramount") merger agreement
and with plaintiff's prospective business advantage. The
amended complaint further alleges that even if plaintiff is
ultimately successful in its bid to acquire Paramount, its
competitive position will still be diminished because the
Company, through Liberty, will have forced plaintiff to expend
additional financial resources to consummate the acquisition.
Plaintiff is seeking permanent injunctive relief and actual
and punitive or treble damages of an undisclosed amount.
Plaintiff claims that the Company, along with Liberty, has
conspired to use its monopoly power in cable television
markets to weaken unaffiliated programmers and deny access to
essential facilities necessary for distributing programming to
cable television systems. Plaintiff also alleges that the
Company has conspired to deny essential, technology necessary
for distributing programming to owners of home satellite
dishes. Plaintiff claims that the Company is engaging in these
alleged conspiracies in an attempt to monopolize alleged
national markets for non-broadcast television programming and
distribution. On October 11, 1994, the United States District
Court granted Tele-Communications, Inc. and the other
defendants' motion for partial summary judgment and dismissed
Viacom's $2 billion damage claim alleging that
defendants tortiously interfered with its contract to merge
with Paramount and with the prospective business advantage
Viacom claimed it had in seeking to merge with Paramount. The
Court also held that the $2 billion difference between
plaintiff's cost to acquire Paramount under its original
proposed merger agreement with Paramount and the costs it
finally incurred when plaintiff acquired Paramount pursuant to
a merger agreement entered into after an auction, was not
incurred as a result of an antitrust injury and could not be
asserted as a discreet element of Viacom's damage even if
Viacom was ultimately successful in proving any or all of its
antitrust claims. Viacom has also voluntarily dismissed its
claims that the defendants violated Section 7 of the Clayton
Act and that certain of the defendants breached the
affiliation agreement they had with Viacom. Based upon the
facts available, management believes that, although no
assurance can be given as to the outcome of this action, the
ultimate disposition should to have a material adverse effect
upon the financial condition of the Company.
II-19
